Form 10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller Reporting Company

0001193125-11-139671.txt : 20110513 0001193125-11-139671.hdr.sgml : 20110513 20110513165808 ACCESSION NUMBER: 0001193125-11-139671 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20110331 FILED AS OF DATE: 20110513 DATE AS OF CHANGE: 20110513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: diaDexus, Inc. CENTRAL INDEX KEY: 0001036968 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 943236309 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26483 FILM NUMBER: 11841918 BUSINESS ADDRESS: STREET 1: 343 OYSTER POINT BOULEVARD CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 BUSINESS PHONE: 650-246-6400 MAIL ADDRESS: STREET 1: 343 OYSTER POINT BOULEVARD CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 FORMER COMPANY: FORMER CONFORMED NAME: VAXGEN INC DATE OF NAME CHANGE: 19990329 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-26483

diaDexus, Inc.

(Exact name of Registrant as Specified in its Charter)

Delaware

94-3236309

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

343 Oyster Point Boulevard

South San Francisco, California

94080

(Address of principal executive offices)

(Zip Code)

(650) 246-6400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s common stock, $0.01 par value per share, was 53,067,057 as of May 6, 2011.

Explanatory Note

On July 28, 2010, VaxGen, Inc., a Delaware corporation, closed a merger transaction (the “Reverse Merger”) with diaDexus, Inc., a privately held Delaware corporation (“Old diaDexus”), pursuant to an Agreement and Plan of Merger and Reorganization, dated as of May 28, 2010, as amended June 24, 2010 (the “Merger Agreement”), by and among VaxGen, Inc., Old diaDexus, Violet Acquisition Corporation, a wholly owned subsidiary of VaxGen Inc. (“Merger Sub I”), Violet Acquisition, LLC, a wholly owned subsidiary of VaxGen, Inc. (“Merger Sub II”), and John E. Hamer, as the representative of Old diaDexus’ stockholders. Pursuant to the Merger Agreement, Old diaDexus became a wholly owned subsidiary of VaxGen, Inc. through a merger of Merger Sub I with and into Old diaDexus, with Old diaDexus being the surviving company in the merger (“Merger I”), and, immediately following the effectiveness of Merger I, the merger of Old diaDexus with and into Merger Sub II, with Merger Sub II being the surviving entity in the merger.

The Reverse Merger has been accounted for as a reverse acquisition. As such, the financial statements of Old diaDexus are treated as the historical financial statements of the combined company, with the results of VaxGen, Inc. being included from July 28, 2010.

On November 1, 2010, VaxGen, Inc. merged Merger Sub II with and into VaxGen, Inc. with VaxGen, Inc. being the surviving entity in the merger, and VaxGen, Inc. changed its name to diaDexus, Inc. pursuant to a merger effected under Section 253 of the Delaware General Corporation Law.

All references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us” and “our” refer to diaDexus, Inc. (f/k/a VaxGen, Inc.), a Delaware corporation, and its consolidated subsidiaries for periods after the closing of the Reverse Merger, and to Old diaDexus and its consolidated subsidiaries for periods prior to the closing of the Reverse Merger unless the context requires otherwise. References to “Pre-Merger VaxGen” mean VaxGen, Inc., a Delaware corporation, prior to the closing of the Reverse Merger.

Table of Contents


PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4	Controls and Procedures	28

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	[Removed and Reserved]	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signatures		38

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

DIADEXUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	March 31, 2011			December 31, 2010
	(unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	4,062		$	20,394
Short-term marketable securities		14,410			—
Accounts receivable, net of allowance for doubtful accounts of $0 and rebate reserve of $13, respectively, and $0 and $0 at March 31, 2011 and December 31, 2010, respectively		1,185			1,543
Receivable from related party		—			175
Inventories		170			105
Restricted cash		400			—
Assets held for sale		308			308
Prepaid expenses and other current assets		1,185			1,046

Total current assets		21,720			23,571
Restricted cash		1,400			1,800
Property and equipment, net		455			580
Other long-term assets		35			128

Total assets	$	23,610		$	26,079


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	520		$	445
Deferred revenues, current portion		331			305
Deferred rent, current portion		70			103
Unfavorable lease obligations		394			363
Accrued and other current liabilities		1,914			1,930

Total current liabilities		3,229			3,146
Long-term deferred rent		106			52
Non-current portion of unfavorable lease obligation		3,436			3,555
Non-current portion of deferred revenue		759			835
Other long term liabilities		652			646

Total liabilities		8,182			8,234


Commitments and contingencies (Note 12)

Stockholders’ equity:
Preferred Stock, $0.01 par value, 19,979,500 shares authorized; none issued or outstanding		—			—
Common stock, $0.01 par value; 65,000,000 shares authorized; 53,067,057 shares issued and outstanding at March 31, 2011 and December 31, 2010		531			531
Additional paid-in capital		204,868			204,774
Accumulated other comprehensive loss		(1	)		—
Accumulated deficit		(189,970	)		(187,460	)

Total stockholders’ equity		15,428			17,845

Total liabilities and stockholders’ equity	$	23,610		$	26,079

See accompanying notes to condensed consolidated financial statements.

DIADEXUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share data)


	Three Months Ended March 31,
	2011			2010
	(unaudited)
Revenues:
License revenue	$	76		$	76
Royalty revenue		1,005			879
Product sales		2,240			1,512
Product sales to related party		—			199

Total revenues		3,321			2,666

Operating costs and expenses:
Product costs		1,132			987
Sales and marketing		1,107			1,278
Research and development		1,492			932
General and administrative		2,114			725

Total operating costs and expenses		5,845			3,922

Loss from operations		(2,524	)		(1,256	)


Interest income, interest expense and other income (expense), net:
Interest income		17			3
Interest expense		—			(112	)
Other income (expense), net		—			2

Loss before income tax		(2,507	)		(1,363	)
Income tax		(3	)		(5	)

Net loss	$	(2,510	)	$	(1,368	)

Basic and diluted net loss per share:	$	(0.05	)	$	(0.07	)

Weighted average shares used in computing basic and diluted net loss per share		53,067,057			19,059,144

See accompanying notes to condensed consolidated financial statements.

DIADEXUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Three Months Ended March 31,
	2011			2010
	(unaudited)
Operating activities:
Net loss	$	(2,510	)	$	(1,368	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		130			222
Stock-based compensation		94			30
Amortization on investments		61			11
Provision for rebate reserve		13			12
Noncash other interest expense (income)		6			(1	)
Noncash interest associated with notes payable		—			31
Unfavorable lease		(88	)		—
Changes in operating assets and liabilities
Accounts receivable		345			(169	)
Accounts receivable from related party		175			96
Inventory		(65	)		(30	)
Prepaid expenses, other current assets and other long-term assets		(46	)		(64	)
Accounts payable		75			95
Accrued liabilities		(16	)		218
Deferred rent		21			(44	)
Deferred revenue		(50	)		116

Net cash used in operating activities		(1,855	)		(845	)


Investing activities:
Purchases of property and equipment		(5	)		(4	)
Maturities of available-for-sale investments		2,500			1,750
Purchases of available-for-sale investments		(16,972	)		—

Net cash provided by (used in) investing activities		(14,477	)		1,746


Financing activities:
Principal repayment of the loan		—			(1,050	)
Expenses relating to merger		—			(20	)

Net cash used in investing activities		—			(1,070	)

Net decrease in cash and cash equivalents		(16,332	)		(169	)
Cash and cash equivalents, beginning of period		20,394			2,539

Cash and cash equivalents, end of period	$	4,062		$	2,370


Supplemental disclosure:
Cash paid for interest	$	—		$	77

See accompanying notes to condensed consolidated financial statements.

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Business Overview

Formation of the Company

The Company (as defined below) is a life sciences company focused on the development and commercialization of patent-protected in vitro diagnostic products addressing unmet needs in cardiovascular disease. The Company is the successor to a company initially formed as a joint venture between SmithKline Beecham Corporation (now GlaxoSmithKline LLC (“GlaxoSmithKline”)) and Incyte Pharmaceuticals, Inc. Upon formation, SmithKline Beecham Corporation granted the Company an exclusive license to certain diagnostic intellectual property, including Lp-PLA₂, an inflammatory marker of cardiovascular risk.

The diaDexus PLAC^® Test for Lp-PLA₂ provides new information, over and above traditional risk factors, to help identify individuals at increased risk of suffering a heart attack or stroke. Some of these events may be reduced with earlier detection and more aggressive risk-reducing strategies, including treatment to lower LDL-cholesterol goals with statins. The Company has developed two formats of the PLAC Test, an enzyme-linked-immunosorbent serologic assay (“ELISA”) product and a turbidimetric immunoassay (“TIA”) product.

On May 10, 2010, we removed our PLAC TIA test from the market in order to address heterophilic interference observed in the PLAC TIA product. On June 30, 2010, we submitted a premarket notification to the United States Food and Drug Administration (the “FDA”) seeking clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act (the “FDCA”) to market an enhanced PLAC TIA product that addresses the heterophilic interference observed in the suspended PLAC TIA product. On January 6, 2011, the FDA informed the Company that it was cleared for marketing the automated version of its proprietary PLAC Test; however, the Company has not yet reintroduced the product to the market.

Reverse Merger

On July 28, 2010, VaxGen, Inc., a Delaware corporation, closed a merger transaction (the “Reverse Merger”) with diaDexus, Inc., a privately held Delaware corporation (“Old diaDexus”), pursuant to an Agreement and Plan of Merger and Reorganization, dated as of May 28, 2010, as amended June 24, 2010 (the “Merger Agreement”), by and among VaxGen, Inc., Old diaDexus, Violet Acquisition Corporation, a wholly owned subsidiary of VaxGen, Inc. (“Merger Sub I”), Violet Acquisition, LLC, a wholly owned subsidiary of VaxGen, Inc. (“Merger Sub II”), and John E. Hamer, as the representative of Old diaDexus’ stockholders. Pursuant to the Merger Agreement, Old diaDexus became a wholly owned subsidiary of VaxGen Inc. through a merger of Merger Sub I with and into Old diaDexus, with Old diaDexus being the surviving company in the merger (“Merger I”), and, immediately following the effectiveness of Merger I, the merger of Old diaDexus with and into Merger Sub II, with Merger Sub II being the surviving entity in the merger.

As of July 28, 2010, after giving effect to the Reverse Merger and the issuance of VaxGen, Inc. common stock to certain employees of Old diaDexus, the Company had 53,067,057 shares of common stock issued and outstanding, with the former holders of Old diaDexus Series F Preferred Stock and employees of Old diaDexus collectively owning approximately 38%, and the Pre-Merger VaxGen stockholders of Pre-Merger VaxGen (as defined below) owning approximately 62%, of the outstanding Company common stock.

The Reverse Merger has been accounted for as a reverse acquisition of net assets. As such, the financial statements of Old diaDexus are treated as the historical financial statements of the Company, with the results of VaxGen, Inc. being included from July 28, 2010. Immediately following the closing of the Reverse Merger, Old diaDexus designees to the Company’s Board of Directors represented a majority of the Company’s directors, Old diaDexus’ senior management represented the entire senior management of the Company and the operations formerly conducted by Old diaDexus were the sole revenue producing operations as well as the only continuing development effort of the Company. For periods prior to the closing of the Reverse Merger, therefore, the information in these notes to consolidated financial statements relates to the historical business and operations of Old diaDexus. Certain portions of this Quarterly Report on Form 10-Q may contain information that relates to Pre-Merger VaxGen’s previous operations, which are no longer material to the Company’s business. Any comparison of Pre-Merger VaxGen’s revenues and operations with those of the Company may not be helpful to an understanding of the Company’s results for the quarter ended March 31, 2011 or future periods.

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements - continued

(Unaudited)

Subsidiary Merger and Name Change

On November 1, 2010, VaxGen, Inc. merged Merger Sub II with and into VaxGen, Inc., with VaxGen, Inc. being the surviving entity in the merger, and VaxGen, Inc. changed its name to diaDexus, Inc. pursuant to a merger effected under Section 253 of the Delaware General Corporation Law.

References in these notes to condensed consolidated financial statements to the “Company,” “we,” “us” and “our” refer to diaDexus, Inc. (f/k/a VaxGen, Inc.), a Delaware corporation, and its consolidated subsidiaries for periods after the closing of the Reverse Merger, and to Old diaDexus and its consolidated subsidiaries for periods prior to the closing of the Reverse Merger, unless the context requires otherwise. References to “Pre-Merger VaxGen” mean VaxGen, Inc., a Delaware corporation, prior to the closing of the Reverse Merger.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the U.S. In the opinion of management, unaudited condensed consolidated financial statements have been prepared on a consistent basis with December 31, 2010 audited financial statements and includes all adjustments, consisting of normal recurring adjustments, which are necessary to fairly state the Company’s consolidated financial positions as of March 31, 2011. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for any other future period. In particular, diaDexus became subject to significant expenses relating to property leases and obligations as a public company. These additional expenses are reflected in our results of operations only from July 28, 2010, the closing date of the Reverse Merger.

All intercompany accounts and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Basis of Consolidation

For the periods prior to July 28, 2010, the consolidated financial statements included the accounts of Old diaDexus, Inc. The Reverse Merger has been accounted for as a reverse acquisition. The financial statements of Old diaDexus are treated as the historical financial statements of the combined company, with the results of VaxGen, Inc. being included from the effective completion date of the Reverse Merger on July 28, 2010. The operations are treated as one operating segment and all inter-company balances and transactions were eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ significantly from those estimates.

The Company considers the following accounting policies related to revenue recognition, research and development expenses, accruals, stock-based compensation and income tax expenses to be the most critical accounting policies, because they require the Company to make estimates, assumptions and judgments about matters that are inherently uncertain.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of 90 days or less to be cash equivalents. Cash equivalents consist primarily of money market accounts and treasury securities.

Related Party

The Company discloses any transactions with GlaxoSmithKline under “related party.”

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements - continued

(Unaudited)

Restricted Cash

Restricted cash represents term deposits, which expire on January 1, 2012 and December 31, 2016, held at two financial institutions as collateral for the leases of the Company’s facilities in South San Francisco.

Available-for-Sale Investments

The Company classifies its investments as available-for-sale. Available-for-sale investments are recorded at fair value based on quoted market prices, with the unrealized gains or losses included in accumulated other comprehensive income (loss) within stockholders’ equity, except that any unrealized losses which are deemed to be other than temporary are reflected in the statement of operations. Management assesses each of these investments on an individual basis to determine if the decline in fair value was other than temporary. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization or accretion is included in interest and other income. Realized gains or losses on sales of available-for-sale securities are reported in other income or expenses as incurred. The cost of securities sold is based on the specific identification method. Interest and dividends on available-for-sale securities are recorded in interest and other income.

Inventory

Inventories are stated as the lower of cost or market. Cost is determined using the first in, first out (“FIFO”) method. Market value is determined as the lower of replacement cost or net realizable value.

Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Laboratory equipment, computers, software, and office furniture are depreciated over three years. Leasehold improvements are recorded at cost and amortized over the term of the lease or their useful life, whichever is shorter. Maintenance and repairs are expensed as incurred.

Segments

The Company has one reportable segment and uses one measurement of profitability to manage its business. All long-lived assets are maintained in the United States of America.

Revenue Recognition

Revenues are generated from licensing fees, royalties earned, product sales and contract arrangements, and recorded net of customer and distributor discounts. Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) delivery of product has occurred and risk of loss and title has transferred, transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured.

License fee revenue including nonrefundable upfront fees, is deferred and recognized over the term of the underlying agreements. Royalty revenue is recognized when reportable product sales are confirmed. Revenue from technology licenses or other payments under collaborative agreements where the Company has a continuing obligation to perform is recognized as revenue over the expected period of the continuing performance obligation. The term of these underlying agreements ranges from two to ten years.

Research and Development

Research and development expenses include internal and external costs. Internal costs include product development, regulatory support for technology, lab materials and supply costs and other technical support costs, including salaries and consultant fees. External expenses consist of sponsored research studies and investigator sponsored trials. Research and development costs are expensed as incurred.

Impairment of Long-Lived Assets

In accordance with Subtopic ASC 360-10, impairment of long-lived assets is measured or assessed when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Certain assets classified as held for sale and which were recorded as part of the Reverse Merger completed on July 28, 2010 have an estimated fair value of $308,000 as of March 31, 2011.

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements - continued

(Unaudited)

Stock-Based Compensation

Effective January 1, 2006, the Company adopted ASC 805 using the modified prospective transition method, which requires the measurement and recognition of compensation expense for all stock-based payments made to employees and directors including employee stock option awards based on estimated fair value.

The assumptions used in computing the fair value of stock-based awards reflect the Company’s best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of the Company’s control. In addition, the Company’s estimate of future stock-based compensation expense will be affected by a number of items including the Company’s stock price, the number of stock options the Company’s board of directors may grant in future periods, as well as a number of complex and subjective valuation adjustments and the related tax effect.

The net loss for the three months ended March 31, 2011 includes employee stock-based compensation expense of $94,000. The net loss for the three months ended March 31, 2010 includes employee stock-based compensation expense of $30,000. As of March 31, 2011, the total unrecorded stock-based compensation expense for unvested stock options, net of expected forfeitures, was $761,000, which is expected to be amortized over a weighted-average period of 2.43 years.

Fair Value Measurements

In accordance with ASC Subtopic 820-10 the carrying amounts of certain financial instruments of the Company, including cash equivalents, marketable securities and liabilities, continue to be valued at fair value. ASC Subtopic 820-10 defines fair value and provides guidance for using fair value to measure assets and liabilities and is applicable whenever assets or liabilities are required or permitted to be measured at fair value.

The fair value estimates presented reflect the information available to the Company as of March 31, 2011. See Note 3, “Fair Value Measurements.”

Deferred Rent

Deferred rent consists of the difference between cash payments and the recognition of rent expense on a straight-line basis for the buildings the Company leases. The leases provide for fixed increases in minimum annual rental payments and the total amount of rental payments due over the lease terms are being charged to rent expense ratably over the life of the leases.

Comprehensive Income (Loss)

Comprehensive income (loss) represents all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. The Company’s unrealized gains on available-for-sale securities represent the component of comprehensive income (loss) excluded from the Company’s net loss.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

On January 1, 2009, the Company adopted ASC 740-10-25. For the three months ended March 31, 2011 and 2010, the Company did not have any additional unrecognized tax benefits and there was no effect on its financial condition or results of operations as a result of adopting ASC 740-10-25. The Company’s practice is to recognize interest and/or penalties related to income tax matters in interest expense as incurred.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements - continued

(Unaudited)

3. Cash, Cash Equivalents and Investments

As part of its cash management program, the Company maintains a portfolio of marketable investment securities that expire at various dates through March 6, 2012. The securities are investment grade and generally mature within one year and include tax exempt securities and certificates of deposit. The fair value of substantially all securities is determined by quoted market prices. The Company maintains its cash in bank accounts, which at times may exceed federally insured limits. The Company has not experienced any losses on such accounts. The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents.

The following is a summary of cash, cash equivalents, and available-for-sale securities at March 31, 2011 and December 31, 2010 (in thousands):


	March 31, 2011
	Cost Basis		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Cash and cash equivalents:
Cash	$	353	$	—	$	—		$	353
Money market funds		2,449		—		—			2,449
Municipal bonds		260		—		—			260
Commercial paper		1,000		—		—			1,000

Total cash and cash equivalents	$	4,062	$	—	$	—		$	4,062


Available-for-sale marketable securities:
Commercial paper		3,996		3		—			3,999
Corporate notes		7,780		—		(4	)		7,776
US government agency obligations		2,635		—		—			2,635

Total available-for-sale marketable securities	$	14,411	$	3	$	(4	)	$	14,410


	December 31, 2010
	Cost Basis		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Cash and cash equivalents:
Cash	$	393	$	—	$	—		$	393
Money market funds		20,001		—		—			20,001

Total cash and cash equivalents	$	20,394	$	—	$	—		$	20,394

Fair Value Measurements

In accordance with ASC 820, the Company discloses and recognizes the fair value of its financial assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The guidance establishes three levels of the fair value hierarchy as follows:

Level 1: Observable inputs, such as quoted prices in active markets for identical assets or liabilities;

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements - continued

(Unaudited)

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010 (in thousands):


			Fair Value Measurements
	Balance at March 31, 2011		Quoted Prices In Active Markets for Identical Assets Level 1		Significant other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Assets:
Cash	$	353	$	353	$	—	$	—
Money market funds		2,449		2,449		—		—
Municipal bonds		260		—		260		—
Commercial paper		4,999		—		4,999		—
Corporate notes		7,776		—		7,776		—
US government agency obligations		2,635		—		2,635		—
Restricted cash		1,800		—		1,800		—

	$	20,272	$	2,802	$	17,470	$	—


			Fair Value Measurements
	Balance at December 31, 2010		Quoted Prices In Active Markets for Identical Assets Level 1		Significant other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Assets:
Cash	$	393	$	393	$	—	$	—
Money market funds		20,001		20,001		—	$	—
Restricted cash		1,800		—		1,800		—

	$	22,194	$	20,394	$	1,800	$	—

4. Inventory

Inventory consists of the following (in thousands):


	March 31, 2011		December 31, 2010
Finished goods	$	111	$	68
Work-in-process		59		37

	$	170	$	105

5. Assets Held For Sale

As part of the Reverse Merger, which was completed on July 28, 2010, the Company acquired a group of assets used by Pre-Merger VaxGen in its manufacturing process. Prior to the Reverse Merger, VaxGen, Inc. had committed to a plan to sell the equipment related to its California manufacturing facility and had determined that these assets met the criteria for, and had been classified as, “held for sale” in accordance with ASC Topic 360. The market approach was used in determining the fair market value of these assets.

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements - continued

(Unaudited)

Total assets held for sale as of March 31, 2011 and December 31, 2010 are as follows (in thousands):


			Fair Value Measurements Using
Description	March 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Three Months Ended March 31, 2011 Gains (Losses)
Assets held for sale	$	308	$	—	$	—	$	308	$	—

			Fair Value Measurements Using
Description	December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Period from July 28, 2010 through December 31, 2010 Total Gains (Losses)
Assets held for sale	$	308	$	—	$	—	$	308	$	(2	)

The measurement of the assets held for sale fair value incorporated significant unobservable inputs as a result of a lack of any available observable market information to determine the fair value. The calculation of the fair value of assets held for sale used a market valuation technique that relied on Level 3 inputs, including quoted prices for similar assets. There was no impairment charge for the three months ended March 31, 2011. Management is in the process of making a determination regarding the final disposition of these assets.

6. Property, Plant and Equipment

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, and maintenance and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:


Office and Laboratory equipment		3 years
Computer equipment and software		3 years
Leasehold improvements		Term of lease agreement

The following is a summary of property and equipment at cost less accumulated depreciation as of March 31, 2011 and December 31, 2010 (in thousands):


	March 31, 2011			December 31, 2010
Laboratory equipment	$	4,565		$	4,560
Leasehold improvements		7,686			7,686
Computer and software		1,843			1,843
Furniture and fixtures		804			804

		14,898			14,893
Less: Accumulated depreciation and amortization		(14,443	)		(14,313	)

	$	455		$	580

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements - continued

(Unaudited)

Depreciation and amortization expense was $0.1 million and $0.2 million for the three months ended March 31, 2011 and 2010, respectively.

7. Total Accrued and Other Current Liabilities

Total accrued and other current liabilities include the following as of March 31, 2011 and December 31, 2010 (in thousands):


	March 31, 2011		December 31, 2010
Accrued payroll and related expenses	$	811	$	1,139
Accrued accounting fees		206		—
Accrued royalty expense		158		153
Accrued consulting expenses		144		109
Deferred sublease payment		122		122
Accrued legal and patent expense		107		59
Collaborative research obligations		90		42
Inventory		40		—
Accrued sales tax		30		26
Other current liabilities		206		280

Total accrued and other current liabilities	$	1,914	$	1,930

8. Concentration of Credit Risk

Revenues from the following four distributor and large laboratory customers represented a significant portion of total revenue for the three months ended March 31, 2011 and 2010 and accounts receivable as of March 31, 2011 and December 31, 2010:


	Revenue						Accounts Receivable
	March 31, 2011			March 31, 2010			March 31, 2011			December 31, 2010
Customer A		51	%		13	%		17	%		26	%
Customer B		16	%		23	%		35	%		27	%
Customer C		11	%		7	%		11	%		14	%
Customer D		6	%		1	%		18	%		11	%

9. Basic and Diluted Loss per Share

Basic net loss per common share is based on the weighted average number of common shares outstanding during the period. Diluted net loss per common share is based on the weighted average number of common shares and other dilutive securities outstanding during the period, provided that including these dilutive securities does not increase the net loss per share.

The effect of the options and warrants was anti-dilutive for the three months ended March 31, 2011 and 2010. The following table shows the total outstanding securities considered anti-dilutive and therefore, excluded from the computation of diluted net loss per share (in thousands):


	As of March 31,
	2011		2010
Options to purchase common stock		7,055		1,147
Warrants to purchase common stock		16		2,070

Total		7,071		3,217

Comprehensive loss for the Company was $2.5 million for the three months ended March 31, 2011 and $1.4 million for the same period in 2010.

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements - continued

(Unaudited)

10. Stock Based Compensation

Stock Option Plans

Pre-Reverse Merger

The Company’s Board of Directors adopted the 2000 Equity Incentive Plan (the “2000 Plan”) and reserved a total of 25,709,911 shares of the Company’s Common Stock for issuance thereunder, of which 2,200,000 shares were converted from the 1997 Plan. These shares of the Company’s Common Stock were reserved for issuance to employees and consultants of the Company. The Board of Directors has the authority to determine to whom options will be granted, the number of shares, the term and exercise price (which cannot be less than the estimated fair value at date of grant for incentive stock options or 85% of the estimated fair value for nonstatutory stock options).

In January 2010, the Company’s Board of Directors adopted the 2010 Equity Incentive Plan (the “2010 Plan”) and reserved a total of 23,163,326 shares of the Company’s Common Stock for issuance under the 2010 Plan, under which 15,435,189 of these shares were converted from the 2000 Plan. These shares of the Company’s Common Stock were reserved for issuance to employees and consultants of the Company.

Options generally vested 25% after one year, with 1/48 of the shares subject to an option vesting on each monthly anniversary of the vesting commencement date thereafter. The maximum term of an option grant could not exceed 10 years. If an employee owned stock representing more than 10% of the outstanding shares, the price of each share was required to be at least 110% of estimated fair value.

As of the closing of the Reverse Merger, the 2000 Plan and the 2010 Plan were both discontinued, and all outstanding option grants under the 2000 Plan and 2010 Plan were cancelled.

Post-Reverse Merger

Following the closing of the Reverse Merger, the Company had the following stock option plans:

1996 Stock Option Plan

The 1996 Stock Option Plan (the “Plan”) initially had 4,750,000 shares of common stock authorized for issuance and a provision that automatically increased this number by 3.5% of the issued and outstanding common stock on the last trading day of the December immediately preceding each fiscal year through January 2007. Options granted under the Plan may be designated as qualified or nonqualified at the discretion of the Compensation Committee of the Board of Directors. Generally, shares issuable upon exercise of options vest ratably over four years, beginning one year from the date of grant; however, options can vest upon grant. All options expire no later than 10 years from the date of grant. Qualified stock options are exercisable at not less than the fair market value of the stock at the date of grant and nonqualified stock options are exercisable at prices determined at the discretion of the Board of Directors, but not less than 85% of the fair market value of the stock at the date of grant.

Following the Reverse Merger, the existing employees were granted new options under the Plan based on their pre-Reverse Merger option grant proportions and vested options under the cancelled Old diaDexus 2000 Plan and 2010 Plan.

1998 Director Stock Option Plan

The 1998 Director Stock Option Plan (the “Director Plan”) for non-employee directors has 300,000 shares of common stock authorized for issuance and all grants under this plan were suspended in 2005.

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements - continued

(Unaudited)

The following is a summary of the Company’s stock option activity and related information for the period ended March 31, 2011:

Valuation Assumptions

The compensation expense related to stock options recognized was determined using the Black-Scholes option valuation model. Option valuation models require the input of subjective assumptions and these assumptions can vary over time. The weighted average assumptions used were as follows:


	Three months ended March 31,
	2011			2010
Dividend yield		0.0	%		0.0	%
Risk-free interest rate		1.56	%		2.10	%
Expected volatility		90.44	%		51.44	%
Forfeiture rate		11.57	%		12.65	%
Expected term (years)		4.27			4.20
Fair value per share at grant date	$	0.26		$	0.01

The expected stock price volatility assumption was determined by examining the historical volatilities for industry peers, as the Company did not have sufficient trading history for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumption as more historical data for the Company’s common stock becomes available. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. Different estimates of volatility and expected term could materially change the value of an option and the resulting expense. The expected term of stock option represents the weighted-average period the stock options are expected to remain outstanding and is based on the options vesting terms, contractual terms and historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

The following table summarizes stock compensation expense related to employee stock options and employee stock based compensation for the three months ended March 31, 2011 and 2010 which was incurred as follows: (in thousands)


	Three Months Ended March 31,
	2011		2010
Stock compensation expense:
Product costs	$	3	$	1
Research and development		22		7
Sales and marketing		13		9
General and administrative		56		13

Total stock compensation expense	$	94	$	30

Employee Stock-Based Compensation

The table below presents information related to stock option activity under the Plan, net of options previously exercised, as follows:


	Number of Options Outstanding			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In years)		Aggregate Intrinsic Value
Outstanding at December 31, 2010		6,948,517		$	0.90
Options granted		402,000			0.39
Options exercised		—			—
Options cancelled/forfeited/expired		(295,273	)		8.12

Outstanding at March 31, 2011		7,055,244		$	0.57		9.12	$	816,923


Exercisable at March 31, 2011		2,180,988		$	1.23		8.52	$	253,579

Vested and expected to vest at March 31, 2011		6,379,775		$	0.60		9.09	$	742,205

The aggregate intrinsic value of stock options exercisable at March 31, 2011 was $254,000 and the aggregate intrinsic value of stock options outstanding was $817,000.

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements - continued

(Unaudited)

The following table summarizes information relating to stock options outstanding as of March 31, 2011:


	Options Outstanding						Options Exercisable
Range of Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life (In Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$0.26 - $0.26		6,141,404		9.28	$	0.26		1,932,148	$	0.26
$0.30 - $0.39		705,000		9.72		0.36		40,000		0.33
$4.57 - $4.57		50,000		2.30		4.57		50,000		4.57
$7.74 - $7.74		40,000		1.16		7.74		40,000		7.74
$8.74 - $8.74		20,000		2.64		8.74		20,000		8.74
$12.27 - $12.27		30,000		3.56		12.27		30,000		12.27
$14.30 - $14.30		20,000		1.85		14.30		20,000		14.30
$15.71 - $15.71		40,000		3.15		15.71		40,000		15.71
$19.44 - $19.44		5,000		0.02		19.44		5,000		19.44
$20.85 - $20.85		3,840		0.16		20.85		3,840		20.85

$0.26 - $20.85		7,055,244		9.12	$	0.57		2,180,988	$	1.23

The estimated fair value of grants of stock options to non-employees of the Company is charged to expense in the financial statements. These options vest in the same manner as the employee options granted under the option plan as described above.

Stock based compensation expense recognized during the three months ended March 31, 2011 and 2010 includes compensation expense for stock based awards granted to employees based on the grant date fair value estimated in accordance with the provisions of ASC 718. As of March 31, 2011, the total remaining unrecognized cost was approximately $0.8 million to be recognized over the next 2.43 years.

Shares Reserved for Future Issuance

The Company had reserved shares of common stock for future issuance at March 31, 2011 and 2010 as follows:


	As of March 31,
	2011		2010
Options to purchase common stock		7,055,244		1,147,286
Warrants to purchase common stock		16,000		2,070,345
Shares available for option grants		1,229,152		7,826,684

Total		8,300,396		11,044,315

In October 2004, Pre-Merger VaxGen granted stock options for 30,000 shares outside the approved plans to a new director with an exercise price of $12.27 per share. These options were granted without stockholder approval, but pursuant to NASDAQ Marketplace Rules then applicable to Pre-Merger VaxGen on terms that are substantially in accordance with Pre-Merger VaxGen’s standard stock option terms. As of March 31, 2011, none of these stock options have been exercised or repurchased.

11. Stock Warrants

The Company issues warrants to investors as part of its overall financing strategy. There were no warrants issued for the three months ended March 31, 2011 and there were warrants outstanding to purchase 16,000 shares of the Company’s common stock, with a weighted average exercise price of $20.25 per share and an aggregate exercise price of $0.3 million.

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements - continued

(Unaudited)

The following table summarizes information about all callable warrants outstanding as of March 31, 2011:


	Warrants Outstanding						Warrants Exercisable
Range of Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life (In Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$20.25 - $20.25		16,000		0.37	$	20.25		16,000	$	20.25

		16,000		0.37	$	20.25		16,000	$	20.25

12. Leases, Commitments and Contingencies

The Company leases certain office facilities under long-term, non-cancelable operating lease agreements. The operating leases expire at various dates through 2016. In connection with one of the leases, the Company subleases a portion of that facility through May 2011.

As part of the Reverse Merger completed on July 28, 2010, the Company recorded the lease obligation associated with the Pre-Merger VaxGen facility located at 349 Oyster Point Blvd., South San Francisco, California, which contained a lease payment that exceeded current market rates. Accordingly, the Company recognized a $4.1 million unfavorable lease obligation, included in the accompanying balance sheet. We amortize the unfavorable lease obligation using the effective interest rate method.

Rent expense for our office facilities was $761,000 and $395,000 for the three months ended March 31, 2011 and 2010, respectively. The terms of the facility lease provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease period. Deferred rent of $176,000 and $155,000 at March 31, 2011 and December 31, 2010, respectively, is included in the accompanying balance sheet.

Rental income from the sublease for the three months ended March 31, 2011 and 2010 was $365,000 and $357,000, respectively. This has been included as a reduction to operating expenses in the statement of operations.

Future minimum lease payments under non-cancelable operating leases are as follows (in thousands):


	Operating Leases
2011 (1)		2,291
2012		2,433
2013		2,505
2014		2,581
2015		2,658
Thereafter		2,738

Total minimum lease payments	$	15,206

(1)	For nine months ending December 31, 2011

On November 2, 2010, the Company received a letter from the landlord of the facility located at 349 Oyster Point Blvd., South San Francisco, California, which is leased by the Company pursuant to a lease agreement entered into by Pre-Merger VaxGen. The letter asserts claims in writing against the Company that, among other things, the Company failed to provide it with required notice of the Reverse Merger and requests that the Company establish an escrow to fund remaining sums due under the lease. The Company believes that these claims are without merit and will vigorously resist any request for an escrow or other special consideration not required under the terms of the lease. However, we cannot assure you that the landlord will not commence legal proceedings against us relating to this lease.

The Company is from time to time subject to various claims and legal actions during the ordinary course of business. The Company believes that there are currently no claims or legal actions that would reasonably be expected to have a material adverse effect on its results of operations or financial condition.

diaDexus, Inc.

Notes to Condensed Consolidated Financial Statements - continued

(Unaudited)

13. Income Taxes

Provision for Income Tax

The Company’s effective tax rate was 0% for income tax for the three months ended March 31, 2011 and the Company expects that its effective tax rate for the full year 2011 will be 0%. Based on the weight of available evidence, including cumulative losses since inception and expected future losses, the Company has determined that it is more likely than not that the deferred tax asset amount will not be realized and therefore a valuation allowance has been provided on net deferred tax assets.

Under the provisions of Section 382 and 383 of the Internal Revenue Code, a change of control, as defined, may impose an annual limitation on the amount of the Company’s net operating loss and tax credit carryforwards, and other tax attributes, that can be used to reduce future tax liabilities. As a result of the Reverse Merger, certain of the Company’s Old diaDexus tax attributes prior to the Reverse Merger are subject to an annual limitation of $240,000 for federal and state purposes.

The Company files U.S. federal and California state tax returns. The Company is currently not subject to any income tax examinations. Due to the Company’s losses, generally all years remain open.

Uncertain Tax Positions

Effective January 1, 2009, the Company adopted ASC 740-10, which requires that the Company recognize the financial statement effects of a tax position when it becomes more likely than not, based upon the technical merits, that the position will be sustained upon examination. The gross amount of unrecognized tax benefits as of March 31, 2011 was $1.7 million, all of which will not affect the effective tax rate if recognized due to valuation allowance. The Company does not expect any material changes in the next 12 months in unrecognized tax benefits.

The Company recognizes interest and/or penalties related to uncertain tax positions. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected in the period that such determination is made. The amount of interest and penalties accrued for ASC 740-10 as interest expense, as of March 31, 2011, is $398,461, which is consistent with the Company’s policy.

14. Subsequent Events

On April 19, 2011, the Company entered into a Volume Discount Addendum No. 2 (“Addendum No. 2”), effective as of January 1, 2011, with Health Diagnostics Laboratory (“HDL”). The Company and HDL are parties to an existing Purchase Agreement and existing Volume Discount Addendum, both effective as of January 1, 2011 (such Purchase Agreement, together with the Volume Discount Addendum, and as amended by Addendum No. 2, the “Amended Purchase Agreement”). Addendum No. 2 provides that, effective as of April 1, 2011, HDL will no longer purchase certain of the Company’s diagnostic test products through a distributor and instead will purchase such products directly from the Company pursuant to the terms of the Amended Purchase Agreement.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward - Looking Statements

This discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q and the risk factors described in Part II, Item 1A of this Quarterly Report.

This Quarterly Report includes “forward-looking statements” that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain forward-looking statements can be identified by words such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “could” or “would” or the negative thereof or other comparable terminology. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any statements of the plans and objectives of management, any statements regarding future operations, any statements regarding future economic conditions or performance and any statement of assumptions underlying any of the foregoing.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward –looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the following:

•

our ability to maintain regulatory clearance for and successfully commercialize our PLAC Test and new diagnostic products, including our enhanced PLAC TIA Test;

•

our reliance on sole source third party manufacturers to manufacture and supply our main reagent and our PLAC Test;

•

our relationship with key customers;

•

the effects of government regulation and our ability to comply with such regulations;

•

our ability to demonstrate that treatment of individuals based on their Lp-PLA2 levels improves clinical outcomes in prospective clinical studies;

•

the rate of adoption of the PLAC Test by doctors and laboratories;

•

third party payors’ acceptance of and reimbursement for the PLAC Test;

•

our ability to retain key employees and to attract, retain and motivate other qualified personnel;

•

our limited revenue and cash resources;

•

the adequacy of our intellectual property rights;

•

our significant corporate expenses, including real estate lease liabilities and expenses associated with being a public company; and

•

the other risks described below in Part II, Item 1A (“Risk Factors”).

Any forward-looking statement included in this Quarterly Report speaks only as of the date hereof. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to update any such forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Background

As described above, on July 28, 2010, we closed the Reverse Merger. As of July 28, 2010, after giving effect to the Reverse Merger and the issuance of VaxGen, Inc. common stock to certain employees of Old diaDexus, we had 53,067,057 shares of common stock issued and outstanding, with the former holders of Old diaDexus Series F Preferred Stock and the former employees of Old diaDexus collectively owning approximately 38%, and the Pre-Merger VaxGen stockholders owning approximately 62%, of the outstanding common stock of the Company.

The Reverse Merger has been accounted for as a reverse acquisition. As such, the financial statements of Old diaDexus are treated as the historical financial statements of the Company, with the results of VaxGen, Inc. being included from July 28, 2010. Immediately following the closing of the Reverse Merger, Old diaDexus designees to the Company’s Board of Directors represented a majority of the Company’s directors, Old diaDexus’ senior management represented the entire senior management of the Company and the operations formerly conducted by Old diaDexus were the sole revenue producing operations as well as the only continuing development effort of the Company. For periods prior to the closing of the Reverse Merger, therefore, our discussion below relates to the historical business and operations of Old diaDexus. Certain portions of this Quarterly Report on Form 10-Q may contain information that relates to Pre-Merger VaxGen’s previous operations, which are no longer material to our business. Any comparison of Pre-Merger VaxGen’s revenues and operations with those of the Company may not be helpful to an understanding of the Company’s results for the quarter ended March 31, 2011 or future periods.

Overview

We are a life sciences company focused on the development and commercialization of patent-protected in vitro diagnostic products addressing unmet needs in cardiovascular disease. We are the successor to a company initially formed as a joint venture between SmithKline Beecham Corporation (now GlaxoSmithKline) and Incyte Pharmaceuticals, Inc. Upon formation, SmithKline Beecham Corporation granted the company an exclusive license to certain diagnostic intellectual property, including Lp-PLA₂, an inflammatory marker of cardiovascular risk.

The diaDexus PLAC Test for Lp-PLA₂ provides new information, over and above traditional risk factors, to help identify individuals at increased risk of suffering a heart attack or stroke. Some of these events may be reduced with earlier detection and more aggressive risk-reducing strategies, including treatment to lower LDL-cholesterol goals with statins. We have developed two formats of the PLAC Test, an enzyme-linked-immunosorbent serologic assay (ELISA) product and a turbidimetric immunoassay (TIA) product.

On May 10, 2010, we removed our PLAC TIA test from the market in order to address a heterophilic interference product performance issue. On June 30, 2010 we submitted a premarket notification to the FDA seeking clearance under Section 510(k) of the FDCA to market an enhanced PLAC TIA product that addresses the heterophilic interference observed in the suspended PLAC TIA product. On January 6, 2011, the FDA informed us that we were cleared for marketing the enhanced PLAC TIA product. We are currently in the process of investigating problems we observed in some PLAC TIA manufacturing lots, and as a result, we will not launch the product to the market in the second quarter of 2011 as previously expected.

We have incurred substantial losses since our inception, and we expect to continue to incur substantial net losses for at least the next few years. To date, we have funded our operations primarily through private placements of preferred stock and debt financing, as well as through revenue generated from the sale of our products. As a result of the Reverse Merger, Old diaDexus obtained $23.4 million in cash and cash equivalents that were held by Pre-Merger VaxGen, but Old diaDexus also became part of a combined entity that is subject to significant liabilities under certain real estate leases and expenses relating to obligations as a public company. These additional expenses are reflected in our results of operations only from July 28, 2010, the closing date of the Reverse Merger.

Currently, we do not have a sufficient current level of revenues to meet the minimum operational expenses necessary to develop and commercialize our products and the minimum fixed expenses needed to meet our commitments under our real estate leases and public company reporting obligations. In the short term, we expect to rely on our cash and short-term investment assets to meet our capital requirements. In the longer term, we will need to maintain and increase our product revenue and raise additional equity or debt financing in order to fund our operations. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. However, we cannot assure you that we will be able to raise any such required financing.

Critical Accounting Policies and Estimates

The accompanying discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosures. On an ongoing basis, we evaluate these estimates. Estimates are based on historical experience, information received from third parties and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from those estimates under different assumptions or conditions.

We consider the following accounting policies related to revenue recognition, research and development expenses, accruals, stock-based compensation and income tax expenses to be the most critical accounting policies, because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain.

Revenues

Our revenues are derived to a large extent from sales to a limited number of distributors and large laboratory customers which account for a significant portion of our revenue. The concentration of our key customers may vary from period to period for a variety of reasons, including competition, developments related to our products (such as the suspension of our PLAC TIA Test), and changes in individual customers’ purchases of our products for reasons including profitability and inventory management. The concentration of revenue from our top four customers was 84% and 63% for the three months ended March 31, 2011 and 2010, respectively.

Revenues by geography are based on the billing address of the customer. The following table sets forth revenues by geographic area (in thousands):


	Three months ended
	March 31,
	2011		2010
United States	$	3,283	$	2,576
Europe		36		83
Rest of the world		2		7

	$	3,321	$	2,666

Over 97% of our revenues in each of the three months ended March 31, 2011 and March 31, 2010, respectively were from the US geographic area.

Research and Development

Research and development expenses include internal and external costs. Internal costs include product development, regulatory support for technology, lab material and supply costs and other technical support costs, including salaries and consultant fees. External expenses consist of sponsored research studies and investigator sponsored trials. Research and development costs are expensed as incurred.

Accruals

In connection with the process of preparing financial statements, we are required to estimate accrued expenses. This process involves communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us. We periodically confirm the accuracy of our estimates with selected service providers and make adjustments, if necessary.

Stock-Based Compensation

We account for stock-based compensation using the fair value recognition provisions of Accounting Standard Codification (“ASC”) 718, Share-Based Payment, which was adopted using the modified-prospective transition method effective January 1, 2006. The fair value of stock options and warrants are calculated using the Black-Scholes pricing method on the date of grant. Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the input of various highly-subjective assumptions, including the expected life of the stock-based payment awards, our stock price volatility and the expected forfeiture rate of our options. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. Because employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in our management’s opinion, the existing model does not necessarily provide a reliable single measure of fair value of our employee stock options. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period. Stock-based compensation to outside consultants is recorded at fair market value in general and administrative expense. See Note 10 to the consolidated financial statements for more information regarding stock-based compensation.

Income Tax

Effective January 1, 2009, we adopted the provisions of Financial Accounting Standards Board ASC 740-10, Accounting for Uncertainty in Income Taxes. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The interpretation applies to all tax positions accounted for and requires a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in an income tax return. Subsequent recognition, de-recognition and measurement is based on management’s best judgment given the facts, circumstances and information available at the reporting date. See Note 13 to the consolidated financial statements for more information regarding our income tax policies.

Pursuant to the Reverse Merger, which was completed on July 28, 2010, Pre-Merger VaxGen filed tax returns with positions that may be challenged by the tax authorities. These positions relate to, among others, deductibility of certain expenses, expenses included in our research and development tax credit computations, as well as other matters. Although the outcome of tax audit is uncertain, in management’s opinion, adequate provisions for income taxes have been made for potential liabilities resulting from such matters. We regularly assess the tax positions for such matters and include reserves for those differences in position. The reserves are utilized or reversed once the statute of limitations has expired and/or at the conclusion of the tax examination. We believe that the ultimate outcome of these matters will not have a material impact on our financial position, financial operations or liquidity.

We file income tax returns in the U.S. federal jurisdiction and the California state jurisdiction. To date, we have not been audited by the Internal Revenue Service or any state income tax jurisdiction. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense. As of March 31, 2011, there have been no interest or penalties charged to us in relation to the underpayment of income taxes.

We have generated net losses since inception and accordingly did not record a provision for income taxes. The deferred tax assets were primarily comprised of federal and state tax net operating loss (“NOL”), carryforwards. Due to uncertainties surrounding our ability to continue to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset our deferred tax assets. Additionally, the future utilization of our NOL carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future. If necessary, the deferred tax assets will be reduced by any carryforwards that expire prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.

Under the provisions of Sections 382 and 383 of the Internal Revenue Code, a change of control, as defined, may impose an annual limitation on the amount of the Company’s net operating loss and tax credit carryforwards, and other tax attributes, that can be used to reduce future tax liabilities. As a result of the Reverse Merger, certain of the Company’s Old diaDexus tax attributes prior to the Reverse Merger are subject to an annual limitation of $240,000 for federal and state purposes.

Results of Operations

Results of Operations for The Three Months Ended March 31, 2011 and 2010.

Revenues


	Three months ended March 31,				% Increase (Decrease)
	2011		2010		2010 to 2011
	(in thousands)
Revenues:
License revenue	$	76	$	76		—	%
Royalty revenue		1,005		879		14	%
Product sales		2,240		1,512		48	%
Product sales to related party		—		199		(100	)%

Total net revenues	$	3,321	$	2,666		25	%

Revenues are generated from licensing fees, royalties earned, product sales, and contract arrangements. We classify our sales to GlaxoSmithKline as sales to related party. Management does not consider the accounting classification of revenue between royalties and product sales to be particularly relevant in evaluating its operating performance. Total net revenues increased $655,000, or 25%, to $3.3 million for the three months ended March 31, 2011 compared to $2.7 million for the three months ended March 31, 2010.

The increase in net revenues reflects an increased demand for our PLAC ELISA product offset by the loss of some smaller customers due to the suspension of our TIA product in May 2010. The decrease in product sales to related party is attributable to a planned reduction in purchases based on the related party’s internal projects.

Our top four distributor and large laboratory customers for the three months ended March 31, 2011 accounted for 84% of our revenue compared to 63% for the three months ended March 31, 2010. Because of this customer concentration and the timing of orders from these customers, our quarterly revenue may fluctuate materially.

In May 2010, we removed our PLAC TIA test from the market in order to address a heterophilic interference product performance issue. On June 30, 2010, we submitted a premarket notification to the FDA seeking clearance under Section 510(k) of the FDCA to market an enhanced PLAC TIA product. On January 6, 2011, the FDA informed us that we were cleared for marketing the enhanced PLAC TIA product. We are currently in the process of investigating problems we observed in some PLAC TIA manufacturing lots, and as a result, we will not launch the product to the market in the second quarter of 2011 as previously expected.

Product Costs


	Three months ended March 31,				% Increase (Decrease)
	2011		2010		2010 to 2011
	(in thousands)
Product costs	$	1,132	$	987		15	%

Product costs include our expenditures for cost of goods, manufacturing support, product supplies, quality control, personnel expenses and overhead allocations. Product costs increased $145,000, or 15%, to $1.1 million for the three months ended March 31, 2011 compared to $987,000 for the three months ended March 31, 2010.

The increase primarily reflects expansion of quality and manufacturing group personnel expenses of approximately $88,000 and an increase in product related materials and supplies costs of approximately $44,000. Gross margin increased slightly to 66% for the three months ended March 31, 2011 compared to 63% for the three months ended March 31, 2010.

Sales and Marketing Expenses


	Three months ended March 31,				% Increase (Decrease)
	2011		2010		2010 to 2011
	(in thousands)
Sales and marketing	$	1,107	$	1,278		(13	)%

Sales and marketing expenses include our expenditures on customer support, medical and other consultant fees, marketing programs and materials, and personnel expenses. Sales and marketing expenses decreased $171,000, or 13%, to $1.1 million for the three months ended March 31, 2011 compared to $1.28 million for the three months ended March 31, 2010.

The decrease primarily reflects reductions in marketing program expenses of approximately $67,000, in marketing materials costs of approximately $58,000, and in related travel expenses of approximately $34,000, primarily as a result of the suspension of our PLAC TIA product in May 2010.

Research and Development Expenses


	Three months ended March 31,				% Increase (Decrease)
	2011		2010		2010 to 2011
	(in thousands)
Research and development	$	1,492	$	932		60	%

Research and development expenses include costs related to product development, regulatory support of our technology and other technical support costs, including salaries and consultant fees. Research and development expenses increased $560,000, or 60%, to $1.5 million for the three months ended March 31, 2011 compared to $932,000 for the three months ended March 31, 2010.

The increase primarily reflects the termination of a third party service arrangement resulting in a reduction in expense reimbursement from a third party of approximately $213,000, an increase in personnel costs of approximately $197,000, and an increase in lab materials and supply costs of approximately $97,000, both due to increased development support for the PLAC TIA product.

We expect to identify and hire additional personnel to staff our planned development activities, and we expect research and development expenses to increase as we seek to maintain and expand our position in the market for diagnostics in cardiovascular disease.

General and Administrative Expenses


	Three months ended March 31,				% Increase (Decrease)
	2011		2010		2010 to 2011
	(in thousands)
General and administrative	$	2,114	$	725		192	%

General and administrative expenses include personnel costs for finance, administration, information systems and professional fees as well as facilities expenses. General and administrative expenses increased $1.4 million, or 192%, to $2.1 million for the three months ended March 31, 2011 compared to $725,000 for the three months ended March 31, 2010.

The increase primarily reflects an increase in accounting, legal, insurance and other professional service costs of approximately $535,000, additional facility costs, including a building lease entered into by Pre-Merger VaxGen, of approximately $520,000, and additional personnel costs related to the Company’s statutory filings requirements and public company obligations of approximately $193,000.

Given our post-Reverse Merger public reporting obligations and higher costs relating to a building lease entered into by Pre-Merger VaxGen, we expect general and administrative expenses to be significantly higher in 2011 relative to pre-Reverse Merger 2010.

Interest Income, Interest Expense and Other Income (expense), net


	Three months ended March 31,					% Increase (Decrease)
	2011		2010			2010 to 2011
	(in thousands)
Interest income, interest expense and other income (expense), net
Interest income	$	17	$	3			467	%
Interest expense		—		(112	)		(100	)%
Other income (expense), net		—		2			(100	)%

Total net interest and other income (expense)	$	17	$	(107	)		(116	)%

Interest income is derived from cash balances and short term investments. Interest expense is based on outstanding debt obligations. Total net interest and other income increased to $17,000 for the three months ended March 31, 2011, representing a change of $124,000 compared to a total net interest and other expense of $107,000 for the three months ended March 31, 2010.

The increase in total net interest and other income was primarily due to a decrease in interest expense for an outstanding debt facility repaid in May 2010 and a decrease of warrant liability valuation in other income (expense).

Income Taxes


	Three months ended March 31,						% Increase (Decrease)
	2011			2010			2010 to 2011
	(in thousands)
Income tax provision	$	(3	)	$	(5	)		(40	)%

We generated net loss for the three months ended March 31, 2011 and had no federal income tax provision. Our effective tax rate was 0% for income tax for the three months ended March 31, 2011 and we expect that our effective tax rate for the full year 2011 will be 0%. The $3,000 income tax provision in 2011 represents state taxes paid during the three months ended March 31, 2011.

In addition, we have substantial net operating loss carry forwards available to offset future taxable income for federal and state income tax purposes. At March 31, 2011, we had unrecognized tax benefits totaling $1.7 million. Our ability to utilize our net operating losses may be limited due to changes in our ownership as defined by Section 382 of the Code.

Liquidity and Capital Resources

Since our inception, we have incurred losses, and we have relied primarily on private placements of preferred stock and debt financing, as well as on revenue generated from the sale of product to fund our operations.

As of March 31, 2011 we had cash, cash equivalents and short term investments of $18.5 million, compared to $20.4 million at December 31, 2010. The decrease primarily reflects cash used in operations for the three months ended March 31, 2011.

Net cash used in operating activities in the three months ended March 31, 2011 was $1.9 million compared to $0.9 million in the three months ended March 31, 2010. The increase of $1.0 million primarily related to the increased net loss, which was mostly driven by increased costs relating to obligations as a public company and costs associated with a building lease entered into by Pre-Merger VaxGen.

Net cash used in investing activities in the three months ended March 31, 2011 was $14.5 million, primarily due to purchases of available-for-sale investments of $17.0 million partially offset by maturities of $2.5 million. Net cash provided by investing activities of $1.7 million in the three months ended March 31, 2010 was primarily due to maturities of available-for-sale investments.

There were no financing activities in the three months ended March 31, 2011. Net cash used in financing activities for the three months ended March 31, 2010 was $1.1 million and primarily reflects principal repayment to a banking syndicate for a term loan that was repaid in May 2010.

As of March 31, 2011, we had an accumulated deficit of $190.0 million, working capital of $18.5 million and shareholders’ equity of $15.4 million. We believe that our existing cash, cash equivalents, and investment securities will be sufficient to cover our cash needed for operating activities and commitments through at least June 30, 2012, based on our current operating plan.

Our future capital requirements will depend primarily upon our ability to maintain and grow our current product revenues, to develop and commercialize new products, to manage our obligations under real estate leases and to improve our reimbursement prospects from third-party payors, including:

•

The rate of product adoption by doctors and laboratories; and

•

The third-party payor community’s acceptance of and reimbursement for the PLAC Test.

We expect to require additional financing and will seek to raise funds through equity or debt offerings, bank facilities, or other sources of capital. Additional funding may not be available when needed or on terms acceptable to us. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. We cannot assure you that we will be able to raise any such additional funding.

Commitments and Contingencies

Our contractual obligations and future minimum lease payments that are non-cancelable at March 31, 2011 are disclosed in the following table.


	Payment due by period (in thousands)
	Total		2011			2012		2013		2014		2015		2016+
Unconditional purchase obligations	$	598	$	598			—		—		—		—		—
Operating lease obligations		15,206		2,291	(1)		2,433		2,505		2,581		2,658		2,738

Total contractual commitments	$	15,804	$	2,889		$	2,433	$	2,505	$	2,581	$	2,658	$	2,738

(1)	For the nine months ending December 31, 2011.

As part of the Reverse Merger completed on July 28, 2010, we recorded a lease obligation associated with the Pre-Merger VaxGen facility which contained a lease payment that exceeded current market rates. Accordingly, the Company recognized a $4.1 million unfavorable lease obligation.

On November 2, 2010 we received a letter from the landlord of the facility located at 349 Oyster Point Blvd., South San Francisco, California, which we lease pursuant to a lease agreement entered into by Pre-Merger VaxGen. The letter asserts claims in writing against the Company that, among other things, the Company failed to provide it with required notice of the Reverse Merger and requests that the Company establish an escrow to fund remaining sums due under the lease. The Company believes that these claims are without merit and will vigorously resist any request for an escrow or other special consideration not required under the terms of the lease. However, we cannot assure you that the landlord will not commence legal proceedings against us relating to this lease.

Off-Balance Sheet Arrangements

As of March 31, 2011, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Recent Accounting Pronouncements

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

In the normal course of business, our financial position is routinely subject to a variety of risks, including market risk associated with interest rate movement. We regularly assess these risks and have established policies and business practices intended to protect against these and other exposures. As a result, we do not anticipate material potential losses in these areas.

As of March 31, 2011, we had cash, cash equivalents, and short-term investments of $18.5 million, consisting of cash, cash equivalents and highly liquid short-term investments. Our short-term investments will likely decline by an immaterial amount if market interest rates increase and, therefore, we believe our exposure to interest rate changes is immaterial. Declines of interest rates over time will however, reduce our interest income from short-term investments.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of March 31, 2011 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Controls

On July 28, 2010, we closed the Reverse Merger, which has been accounted for as a reverse acquisition. The financial statements and information relating to Old diaDexus, a privately held company, now constitute the financial statements and information of the “Company.” Because diaDexus was a privately held company prior to the Reverse Merger, it was not required to design or maintain its controls in accordance with Exchange Act Rule 13a-15 prior to the Reverse Merger. The operations of Pre-Merger VaxGen, a publicly held company, were insignificant both before and after the Reverse Merger compared to those of the post-combination consolidated entity. As such, significant time and resources from our management and other personnel have been required and will continue to be required for the design and implementation of public company internal control over financial reporting for the post-combination consolidated Company. Except for the continuing design and implementation of new processes and procedures following the Reverse Merger, there was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting may not prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

On November 2, 2010 we received a letter from the landlord of the facility located at 349 Oyster Point Blvd., South San Francisco, California, which we lease pursuant to a lease agreement entered into by Pre-Merger VaxGen. The letter asserts claims in writing against the Company that, among other things, the Company failed to provide it with required notice of the Reverse Merger and requested that the Company establish an escrow to fund remaining sums due under the lease. The Company believes that these claims are without merit and will vigorously resist any request for an escrow or other special consideration not required under the terms of the lease. However, we cannot assure you that the landlord will not commence legal proceedings against us relating to this lease.

Item 1A.

Risk Factors

Investing in our common stock involves a very high degree of risk. You should carefully consider the risks described below and all of the other information in our filings under the Exchange Act before making any investment decisions regarding our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we do not know or that we currently deem immaterial may also negatively affect our business, financial condition, operating results, and prospects. In that case, the market price of our common stock could decline, and you could lose all or part of your investment.

Risks Relating to Our Business Operations

Our enhanced PLAC TIA Test was recently approved, and its reintroduction may take more time and resources than we expect.

On May 10, 2010, we began notifying our customers that we had temporarily suspended the commercialization of the PLAC TIA product, and asked customers to discontinue use of this product, due to heterophilic interference observed in a small number of samples tested. On June 30, 2010 we submitted a premarket notification to the FDA seeking clearance under Section 510(k) of the FDCA to market an enhanced PLAC TIA product that addressed the heterophilic interference observed in the suspended PLAC TIA product. On January 6, 2011, the FDA informed us that we were cleared for marketing the enhanced PLAC TIA product. We are currently in the process of investigating problems we observed in some PLAC TIA manufacturing lots, and as a result, we will not launch the product to the market in the second quarter of 2011 as previously expected. Our failure to reintroduce the PLAC TIA product on a timely basis (or at all) could have an adverse effect on our financial condition and our ability to maintain or expand our business.

We are an early stage company and have engaged in only limited sales and marketing activities for our first product, the PLAC Test, which aids in assessing risk for both heart attack and ischemic stroke associated with atherosclerosis.

Our products may never gain significant acceptance in the marketplace and therefore never generate substantial revenue or profits for the Company. As is the case with all novel biomarkers, we must establish a market for our PLAC Test and build that market through physician education and awareness programs. Publication in peer review journals of results from outcome studies using our products will be an important consideration in the adoption by physicians and in the coverage by insurers of our products. For example, we are currently in the process of having banked samples from two prospective statin outcome studies tested and analyzed, with the aim of generating publications in peer review journals that provide further support for the adoption of the PLAC Test by physicians and the coverage of the product by third party payors. If the results of these studies are not positive, or if physicians or third party payors disagree with our interpretation of the data, this effort may not be successful. Our ability to commercialize successfully the PLAC Test and other diagnostic products will depend on factors, including:

•

whether healthcare providers believe our PLAC Test and any other diagnostic tests that we successfully develop provide sufficient incremental clinical utility;

•

whether we are able to demonstrate that treatment of individuals based on their Lp-PLA₂ levels improves clinical outcomes in prospective clinical studies; and

•

whether health insurers, government health programs and other third-party payors will cover and pay for our diagnostic tests and the amounts they will reimburse. We cannot assure that third-party payors will reimburse any of our products or that the level of reimbursement will be sufficient to realize a profit. The health care reimbursement system is in a constant state of change, including changes due to the enactment in 2010 of federal healthcare reform, and any change may adversely impact our business.

These factors may present obstacles to commercial acceptance of our products, and we may need to devote substantial time and money to surmount these obstacles, and the result might not be successful.

Our business is characterized by a high degree of customer concentration. Our four largest distributor and large laboratory customers accounted for 81% of our accounts receivable and 84% of our revenue as of and for the three months ended March 31, 2011, respectively. The loss of one or more of these customers or a decline in revenue from one or more of these customers could have a material adverse effect on our business, financial condition, and results of operations.

Sales to a limited number of distributor and large laboratory customers account for a significant portion of our revenue and accounts receivable. Our dependence on and the identity of our key customers may vary from period to period as a result of competition among our customers, developments related to our products (such as the suspension of our PLAC TIA Test), and changes in individual customers’ purchases of our products for profitability, inventory management or other reasons. The concentration of revenue from our top four customers for the three months ended March 31, 2011 was 84% and was 63% for the three months ended March 31, 2010. We may experience greater or lesser customer concentration in the future, depending on future commercial agreements and whether and when we are able to commercialize the PLAC TIA product. However, it is likely that our revenue and profitability will continue to be dependent on a very limited number of large laboratory companies and distributors, and we may experience an even higher degree of customer concentration in the future. The loss of, material reduction in sales volume to, or significant adverse change in our relationship with any of our key customers could have a material adverse effect on our revenue in any given period and may result in significant annual and quarterly revenue variations. In addition, we may be unable to collect related accounts receivables when due, which could have a material adverse effect on our business. The concentration of accounts receivable from our top four customers as of March 31, 2011 was 81% and was 64% as of March 31, 2010.

We rely on sole source third parties to manufacture and supply certain raw materials, our main reagent and our PLAC Tests. If these manufacturers are unable to supply these raw materials, reagents and products in a timely manner, or at all, we may be unable to meet customer demand, which would have a material adverse effect on our business.

We currently depend on sole source, third party manufacturers, Denka Seiken, BioCheck, Inc., and Diazyme Laboratories, to manufacture and supply certain raw materials, our main reagent, and the different formats of our PLAC Test. We cannot assure you that these manufacturers will be able to provide these raw materials, reagents and products in quantities that are sufficient to meet demand or at all, in a timely manner, which could result in decreased revenues and loss of market share. There may be delays in the manufacturing process over which we have no control, including shortages of raw materials, labor disputes, backlog and failure to meet FDA standards. We are aware that certain of our sole source manufacturers rely on sole source suppliers with respect to materials used in our products. We rely on our third-party manufacturers to maintain their manufacturing facilities in compliance with FDA and other federal, state and/or local regulations including health, safety and environmental standards. If they fail to maintain compliance with FDA or other critical regulations, they could be ordered to curtail operations, which would have a material adverse impact on our business. Increases in the prices we pay our manufacturers, or lapses in quality, such as failure to meet our specifications or Quality System Regulation (“QSR”) and other regulatory requirements, could materially adversely affect our business. Any manufacturing defect or error discovered after our products have been produced and distributed could result in significant consequences, including costly recall procedures and damage to our reputation. Our ability to replace an existing manufacturer may be difficult, because the number of potential manufacturers is limited. If we do undertake to negotiate terms of supply with another manufacturer or other manufacturers, our relationships with our existing manufacturers could be harmed. Any interruption in the supply of raw materials, reagents or product, or the inability to obtain these raw materials, reagents or product from alternate sources in a timely manner, could impair our ability to supply the PLAC Test and to meet the demands of our customers, which would have a material adverse effect on our business.

We are subject to extensive regulation by the FDA and other regulatory agencies and failure to comply with such regulation could have a material adverse effect on our business, financial condition, and results of operations.

Our business and our medical device products, including our PLAC Tests, are subject to extensive regulation by the FDA and other federal, state, and foreign regulatory agencies. These laws and regulations govern many aspects of our products and operations, and the products and operations of our suppliers and distributors, including premarket clearance and approval, design, development and manufacturing, labeling, packaging, safety and adverse event reporting, recalls, storage, advertising, promotion, sales and record keeping. Failure to comply with these laws and regulations could result in, among other things, warning letters, civil penalties, delays in clearance or approval of our products, recalls, and other operating restrictions, all of which could cause us to incur significant expenses.

Before we can market or sell a new product or a significant modification to an existing product in the United States, we must obtain either clearance under Section 510(k) of the FDCA, or approval of a pre-market approval application, or PMA, from the FDA, unless an exemption applies. In the 510(k) clearance process, the applicant must demonstrate to the FDA’s satisfaction that a proposed device is “substantially equivalent” to a device legally on the market, known as a “predicate” device, with respect to intended use, technology and safety and effectiveness, in order to obtain clearance from the FDA to market the proposed device. Clinical data is sometimes required to support substantial equivalence. The PMA pathway requires an applicant to demonstrate the safety and effectiveness of the device based, in part, on extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing, and labeling data. The FDA can delay, limit, or deny clearance or approval of a device for many reasons, including:

•

we may not be able to demonstrate to the FDA’s satisfaction that our products are safe and effective for their intended users;

•

the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required;

•

the manufacturing process or facilities we use may not meet applicable requirements; and

•

changes in FDA clearance or approval policies or the adoption of new regulations may require additional data.

Further, any modification we make to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design, or manufacture, would require us to seek a new 510(k) clearance or, possibly, approval of a PMA. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or PMAs for modifications to our previously cleared products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties.

Even when a product reaches the market, the subsequent discovery of previously unknown problems, such as material deficiencies or defects in design, labeling, or manufacture, or a potential unacceptable risk to health, with a product may result in restrictions on the product, including recall or withdrawal of the product from the market, and/or a requirement to submit a new 510(k) submission or PMA for the product in order to support continued marketing. For example, we suspended commercialization of the PLAC TIA product due to heterophilic interference observed in a small number of samples tested and sought a new 510(k) for the product. We may be forced to take similar actions in the future in response to previously unknown problems with our marketed products.

We are also subject to routine inspection by the FDA and certain state agencies for compliance with QSR, which establishes the good manufacturing practices for medical devices, and Medical Device Reporting regulations, which require us to report to the FDA any incident in which one of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that could cause death or serious injury. Although we believe that we have adequate processes in place to ensure compliance with these requirements, the FDA or other regulatory bodies could force us to stop manufacturing, selling or exporting our products if it concludes that we are out of compliance with applicable regulations or if it concludes that our products pose an unacceptable risk to health or are otherwise deficient in design, labeling or manufacture. Further, the ability of our suppliers to supply critical components or materials and of our distributors to sell our products could be adversely affected if their operations are determined to be out of compliance. The FDA and other regulatory bodies could also require us to recall products if we fail to comply with applicable regulations, which could force us to stop manufacturing such products. Such actions by the FDA and other regulatory bodies would adversely affect our revenues and results of operations.

Many national, regional, and local laws and regulations, including the recently-enacted healthcare reform legislation, have not been fully implemented by the regulatory authorities or adjudicated by the courts, and their provisions are open to a variety of interpretations. In the ordinary course of business, we must frequently make judgments with respect to compliance with applicable laws and regulations. If regulators subsequently disagree with the manner in which we have sought to comply with these regulations, we could be subjected to various sanctions, including substantial civil and criminal penalties, as well as product recall, seizure or injunction with respect to the sale of our products. Such sanctions could severely impair our reputation within the industry and any limitation on our ability to manufacture and market our products could have a material adverse effect on our business. In addition, in January 2011, the FDA announced twenty-five action items it intends to take in reforming the 510(k) premarket review program, The FDA issued its recommendations and proposed action items in response to concerns from both within and outside of FDA about the 510(k) program. Although the FDA has not detailed the specific modifications or clarifications that the Agency intends to make to its guidances, policies, and regulations pertaining to the review and regulation of devices such as ours which seek and receive marketing clearance through the 510(k) process, the FDA’s announced action items signal that additional regulatory requirements are likely. In particular, the FDA intends to issue a variety of draft guidances and regulations over the coming months which would, among other things, clarify when changes to a cleared medical device warrant a new 510(k) and which modifications would be eligible for a Special 510(k), establish a Unique Device Identification System, and clarify FDA’s use and application of several key terms in the 510(k) review process. These reforms, when implemented, could impose additional regulatory requirements upon us which could delay our ability to obtain new clearances, increase the cost of compliance, or restrict our ability to maintain our current 510(k) clearances.

We are reliant on the commercial success of our PLAC Test products.

We are largely dependent on our main product line, the PLAC Test. We expect that the PLAC Test products will account for a substantial portion of our revenue for the foreseeable future. We do not know if our PLAC Test products will be successful over the long-term and it is possible that the demand for the product may decline over time. Any decline in demand or failure of the diaDexus PLAC Test products to penetrate current or new markets significantly could have a material adverse effect on our business, financial condition, and results of operations.

If third-party payors do not reimburse our customers for the use of our clinical diagnostic products or if they reduce reimbursement levels, our ability to sell our products will be harmed.

We sell our products primarily through distributors and to large laboratory customers, substantially all of which receive reimbursement for the health care services they provide to their patients from third-party payors, such as Medicare, Medicaid and other government programs, private insurance plans and managed care programs. Third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for medical products and services. Increasingly, Medicare, Medicaid and other third-party payors are challenging the prices charged for medical services, including clinical diagnostic tests. Most of these third-party payors may deny reimbursement if they determine that a medical product was not used in accordance with cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved indication.

If our customers are not reimbursed for our products, they may reduce or discontinue purchases of our products, which would cause our revenues to decline. Lower-than-expected, or decreases in, reimbursement amounts for tests performed using our products may decrease amounts physicians and other practitioners are able to charge patients, which in turn may adversely affect the willingness of physicians and other practitioners to purchase our products at prices we target, or at all. If we are unable to sell our products at target prices, our gross margins will suffer and our business could be materially adversely affected.

Healthcare reform and restrictions on reimbursement may adversely affect our profitability.

In the United States, healthcare providers that purchase our products and other diagnostic products generally rely on third-party payors to reimburse all or part of the cost of the procedure. We face efforts by non-governmental third-party payors, including health plans, to reduce utilization of diagnostic testing services and reimbursement for diagnostic services. For instance, third-party payors often use the payment amounts under the Medicare fee schedules as a reference in negotiating their payment amounts. As a result, a reduction in Medicare reimbursement rates could result in a reduction in the reimbursements we receive from such third-party payors. Changes in test coverage policies of and reimbursement from other third-party payors may also occur independently from changes in Medicare. Third-party payors may refuse to reimburse for procedures and devices deemed to be experimental and investigational. Such reimbursement and coverage changes in the past have resulted in reduced prices, added costs and reduced accession volume and have added more complex and new regulatory and administrative requirements.

In the United States, the American Medical Association assigns specific Current Procedural Terminology, or CPT, codes, which are necessary for reimbursement of diagnostic tests. Once the CPT code is established, the Centers for Medicare and Medicaid Services establish reimbursement payment levels and coverage rules under Medicaid and Medicare, and private payors establish rates and coverage rules independently. Although the tests performed by our assays have previously assigned CPT Codes, we cannot guarantee that our future assays will be covered by such CPT codes and will, therefore, be approved for reimbursement by Medicare and Medicaid as well as most third-party payors. Levels of reimbursement may decrease in the future, and future legislation, regulation or reimbursement policies of third-party payors may adversely affect the demand for and price levels of our products.

Our future success depends on our ability to retain our Chief Executive Officer and other key employees and to attract, retain and motivate qualified personnel.

We depend on the efforts and abilities of Patrick Plewman, our Chief Executive Officer, along with other senior management, our research and development staff and a number of other key management, sales, support, technical and administrative services personnel. Competition for experienced, high-quality personnel exists, and we cannot assure that we can continue to recruit and retain such personnel. Our failure to hire and retain such personnel would impair our ability to develop new products and manage our business effectively.

We will need to raise additional capital to support our operations and to continue as a going concern.

We will require additional funds to commercialize our products and develop new products. Our ability to fund our net losses and to conduct the required development activities related to any new product candidates will be significantly limited if we are unable to obtain the necessary capital. We may seek to raise additional funds through equity or debt offerings, bank facilities, or other sources of capital. We do not know, however, whether additional financing will be available when needed, or whether it will be available on favorable terms or at all. Failure to obtain adequate financing also will likely adversely affect our ability to operate as a going concern. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants.

We are an early stage company with a history of losses, we expect to incur losses for at least the next few years, and we may never achieve profitability.

We have incurred substantial net losses since our inception. Our accumulated deficit was approximately $190.0 million at March 31, 2011. For the three months ended March 31, 2011 and 2010, we incurred a net loss of $2.5 million and $1.4 million, respectively. We expect to continue to incur substantial net losses for at least the next few years. If we are unable to execute our commercialization strategy to achieve profitability, or if the time required to achieve profitability is longer than we anticipate, we may not be able to continue our business.

If the combination of patents, trade secrets, trademarks, and contractual provisions that we rely on to protect our intellectual property proves inadequate, our ability to successfully commercialize our products will be harmed and we may never be able to operate our business profitably.

Our success depends, in large part, on our ability to protect proprietary discoveries, technology, and diagnostic tests that we develop under the patent and other intellectual property laws of the United States and other countries, so that we can seek to prevent others from unlawfully using our inventions and proprietary information.

Additionally, we have filed or have license rights to a number of patent applications that are in an early stage of prosecution, and we cannot make any assurances that any of the pending patent applications will result in patents being issued. In addition, due to technological changes that may affect our proposed products or judicial interpretation of the scope of our patents, our proposed products might not, now or in the future, be adequately covered by our patents.

We have liabilities for real estate leases in excess of what is necessary for our current business. We will incur these additional expenses until our lease of a smaller facility expires or until we are able to sublease our larger leased facility.

We have a significant real estate lease for a facility of approximately 65,000 square feet with current monthly minimum required expenses of approximately $200,000. The term of the lease continues until December 31, 2016. Our lease of a smaller facility continues until January 1, 2012, with current monthly minimum required expenses of approximately $90,000. We receive some reimbursement under a sublease of a portion of this property, which offsets a significant portion of our total monthly expenses under the lease and which expires after May 2011. Until such time that (i) our lease expires and we choose to move our operations to the larger facility or (ii) we are able to sublease our larger leased facility, we will incur liabilities for real estate leases significantly in excess of what is necessary for our current business. We may never be able to sublease the larger facility. Also, the landlord of the larger leased facility has previously filed lawsuits to enforce actions that the landlord believes are protective of its leasehold interests. The landlord of the larger leased facility has asserted claims in writing against us that, among other things, we failed to provide it with required notice of the Reverse Merger, and has requested that we establish an escrow to fund remaining sums due under the lease. We believe that these claims are without merit and will vigorously resist any request for an escrow or other special consideration not required under the terms of the lease. However, we cannot assure you that the landlord will not commence legal proceedings against us relating to this lease.

We license key intellectual property from GlaxoSmithKline and ICOS, and our contractual relationships have certain limitations.

We have an exclusive license from GlaxoSmithKline and a co-exclusive license from ICOS Corporation (“ICOS”) to practice and commercialize technology covered by several issued and pending United States patents and their foreign counterparts. The majority of patents that relate to products currently sold by us will begin to expire in mid-2014.

Several of our collaboration agreements with GlaxoSmithKline and ICOS provide licenses to use intellectual property that is important to our business, and we may enter into additional agreements in the future with GlaxoSmithKline or with other third parties that change licenses of valuable technology. Current licenses impose, and future licenses may impose, various commercialization, milestone and other obligations on us, including the obligation to terminate our use of patented subject matter under certain circumstances. If a licensor becomes entitled to, and exercises, termination rights under a license, we could lose valuable rights and our ability to develop our current and future products. Our business may suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of the license or fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid or if we are unable to enter into necessary licenses on acceptable terms.

Our stock price is likely to be volatile.

Currently, our common stock is quoted on the OTC Bulletin Board. Stocks traded “over the counter” typically are subject to greater volatility than stocks traded on stock exchanges, such as the NASDAQ Stock Market, due to the fact that OTC trading volumes are generally significantly lower than those on stock exchanges. This lower volume may allow a relatively few number of stock trades to greatly affect the stock price. The trading price of our common stock has been and is likely to continue to be extremely volatile. Some of the many factors that may cause the market price of our common stock to fluctuate include, in no particular order:

•

Actions taken by regulatory authorities with respect to our products;

•

The progress and results of our product development efforts;

•

The outcome of legal actions to which we may become a party;

•

Our ability to commercialize the products, if any, that we are able to develop;

•

Changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; and

•

Restatements of our financial results and/or material weaknesses in our internal controls.

The stock markets, and the markets for medical diagnostics and biotechnology stocks in particular, have experienced volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Investors may not be able to sell when they desire due to insufficient buyer demand and may realize less than, or lose all of, their investment.

Our business, in particular the growth of our business, is dependent on our ability to successfully develop and commercialize novel diagnostic products and services based on biomarkers. If we fail to develop and commercialize diagnostic products, we may be unable to execute our business plan.

Our long-term ability to generate product-related revenue will depend in part on our ability to develop additional formats or versions of the PLAC Test and other new diagnostic products. If internal efforts do not generate sufficient product candidates, we will need to identify third parties that wish to collaborate with us to develop new products and applications. Our ability to pursue successfully third-party relationships will depend in part on our ability to negotiate acceptable license and related agreements. Even if we are successful in establishing collaborative arrangements, they may never result in the successful development or commercialization of any product candidate or the generation of any sales or royalty revenues. In addition, rapid technological developments and innovations characterize the markets for our products and services. Our success will depend in large part on our ability to correctly identify emerging trends, enhance capabilities, and develop and manufacture new products quickly, in a cost-effective manner, and at competitive prices. The development of new and enhanced products is a complex and costly process. We may need to make substantial capital expenditures and incur significant research and development costs to develop and introduce such new products and enhancements. Our choices for developing products may prove incorrect if customers do not adopt the products we develop or if the products ultimately prove to be medically or commercially unviable. The discovery of performance problems may adversely affect development schedules. If we fail to timely develop and introduce competitive new products or additional formats of our existing products, our business, may be materially adversely affected.

Any inability to protect our proprietary technologies and product candidates adequately could harm our competitive position.

We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. We plan to continue to apply for patents covering our technologies and products as we deem appropriate. We cannot make assurances that our pending patent applications will issue as patents and, if they do, whether the scope of such claims will be sufficiently broad to prevent third parties from utilizing our technologies, commercializing our discoveries or developing competing products. Any patents we currently hold, or obtain in the future, may not be sufficiently broad to prevent others from utilizing our technologies, commercializing our discoveries, or developing competing technologies and products. Furthermore, third parties may independently develop similar or alternative technologies or design around our patented technologies. Third parties may challenge or invalidate our patents, or our patents may fail to provide us with any competitive advantage.

We have rights to patents and patent applications owned by GlaxoSmithKline, Human Genome Sciences, Inc. (“Human Genome Sciences”) and ICOS that provide important protection on the composition of matter and utility of our products and product candidates. We do not, however, directly control the prosecution and maintenance of all of these patents. GlaxoSmithKline, Human Genome Sciences, and ICOS may not fulfill their obligations as licensors and may allow these patents to go abandoned or may not pursue meaningful claims for our products. Also, while the United States Patent and Trademark Office has issued diagnostic patents covering utility or methods, we do not know whether or how courts will enforce these patents. If a court finds these types of inventions to be unpatentable or interprets them narrowly, the benefits of our patent strategy may not materialize. If any or all of these events occur, they could diminish the value of our intellectual property.

The requirements of being a public company have required and will continue to require significant resources, increase our costs and occupy our management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

On July 28, 2010, we closed the Reverse Merger. The Reverse Merger was determined to constitute a reverse acquisition and Old diaDexus, a privately held company, was determined to be the acquirer for accounting purposes. Although Pre-Merger VaxGen was an operating company, its operations were insignificant compared to those of the post-merger entity. Because the financial statements and information relating to Old diaDexus now constitute our financial statements and information, we are in a position similar to a newly public company.

As a company with public reporting responsibilities, we have incurred and will continue to incur significant legal, accounting, and other expenses that Old diaDexus did not incur as a private company. Complying with rules, regulations and requirements applicable to public companies will require substantial effort and will increase our costs and expenses. Among other things, we are required to:

•

institute a more formalized function of internal control over financial reporting;

•

prepare and file and distribute periodic and current reports under the Exchange Act for a larger operating business and comply with other Exchange Act requirements applicable to public companies;

•

formalize old and establish new internal policies, such as those relating to insider trading and disclosure controls and procedures;

•

involve and retain to a greater degree outside counsel and accountants in the above activities; and

•

establish and maintain an investor relations function, including the provision of certain information on our website.

Compliance with these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage.

The securities laws require, among other things, that we implement and maintain effective internal control for financial reporting and disclosure. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting. Our testing may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. We expect to incur significant expense and devote substantial management effort toward ensuring compliance with these requirements. Moreover, if we are not able to comply with these requirements in a timely manner, or if we identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our common stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would entail expenditure of additional financial and management resources.

Natural disasters, including earthquakes, may damage our facilities.

Our corporate and manufacturing facilities are located in California. Our facilities in California are in close proximity to known earthquake fault zones. As a result, our corporate, research and manufacturing facilities are susceptible to damage from earthquakes and other natural disasters, such as fires, floods and similar events. Although we maintain general business insurance against fires and some general business interruptions, there can be no assurance that the scope or amount of coverage will be adequate in any particular case. Insurance specifically for earthquake risks is not available on commercially reasonable terms.

We are not currently listed on a national exchange and there can be no assurance we will ever be listed.

As a result of our failure to make timely filings of financial statements, we were delisted from the NASDAQ Stock Market in 2004. Currently, our common stock is quoted on the OTC Bulletin Board under the symbol DDXS.OB. We have not yet applied for our common stock to be listed on a national exchange, and we do not currently meet all of the requirements for listing or relisting on the NASDAQ Stock Market. We do not know when, if ever, our common stock will be listed on a national stock exchange. In addition, we cannot be certain that the NASDAQ Stock Market will approve our stock for relisting or that any other exchange will approve our stock for listing. In order to be eligible for relisting or listing, we must meet the initial listing criteria for the NASDAQ Stock Market or another national exchange, including a minimum per share price.

Our charter documents and Delaware law may discourage an acquisition of the Company.

Provisions of our certificate of incorporation, bylaws, and Delaware law could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. We may issue shares of preferred stock in the future without stockholder approval and upon such terms as our Board of Directors may determine. Our issuance of this preferred stock could have the effect of making it more difficult for a third-party to acquire, or of discouraging a third-party from acquiring, a majority of our outstanding stock. Our bylaws also provide that special stockholders meetings may be called only by our Board of Directors, Chairperson of the Board of Directors, or by our Chief Executive Officer or President, with the result that any third-party takeover not supported by the Board of Directors could be subject to significant delays and difficulties.

Failure in our information technology and storage systems could significantly disrupt the operation of our business.

Our ability to execute our business plan depends, in part, on the continued and uninterrupted performance of our information technology systems, or IT systems. IT systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability to generate and maintain data could adversely affect our ability to operate our business.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3.

Defaults Upon Senior Securities.

None

Item 4.

[Removed and Reserved.]

None

Item 5.

Other Information.

None

Item 6.

Exhibits

The following exhibits are filed as part of this report:


Exhibit		Description

2.1*		Agreement and Plan of Merger and Reorganization, dated May 28, 2010, by and among VaxGen, Inc., Violet Acquisition Corporation, Violet Acquisition LLC, diaDexus, Inc. and John E. Hamer, as the agent of diaDexus, Inc.’s stockholders (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K (file no. 0-26483), filed on June 1, 2010)

2.2		Amendment No. 1 to Agreement and Plan of Merger and Reorganization, dated June 24, 2010, by and among VaxGen, Inc., Violet Acquisition Corporation, Violet Acquisition LLC, diaDexus, Inc., and John E. Hamer as the agent of diaDexus, Inc.’s stockholders (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K (file no. 0-26483), filed on June 28, 2010)

3.1		Restated Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Quarterly Report on Form 10-Q (file no. 0-26483) for the fiscal quarter ended September 30, 2010, filed on November 15, 2010)

3.2		Certificate of Change of Registered Agent and Registered Office (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K (file no. 0-26483), filed on January 25, 2011)

3.3		Amended and Restated Bylaws of the registrant (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K (file no. 0-26483), filed on November 5, 2010)

10.1**		Distribution Agreement, effective as of January 1, 2011 (the “Inova Agreement”), by and between diaDexus, Inc. and Inova Diagnostics, Inc.

10.2**		2011 Special Programs Addendum to the Inova Agreement, effective as of January 1, 2011

10.3**		First Amendment to the Inova Agreement, effective as of January 1, 2011

10.4**		Addendum No. 3 to the Master Supply Agreement, effective as of April 1, 2011, by and between diaDexus, Inc. and Berkeley HeartLab, Inc.

10.5**		Purchase Agreement, effective as of January 1, 2011, by and between diaDexus, Inc. and Health Diagnostics Laboratory

10.6**		Volume Discount Addendum to the Purchase Agreement, effective as of January 1, 2011, by and between diaDexus, Inc. and Health Diagnostics Laboratory

10.7		Volume Discount Addendum No. 2 to the Purchase Agreement, effective as of April 1, 2011, by and between diaDexus, Inc. and Health Diagnostics Laboratory

31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)

31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Certain schedules referenced in the Agreement and Plan of Merger and Reorganization have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the Securities and Exchange Commission upon request.

**	Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the SEC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	diaDexus, Inc.

Date: May 13, 2011	By:	/ S / Patrick Plewman
		Patrick Plewman
		President & Chief Executive Officer

Date: May 13, 2011	By:	/ S / David J. Foster
		David J. Foster
		Executive Vice President, Chief Financial Officer and Secretary

EXHIBIT INDEX


Exhibit No.		Description

2.1*		Agreement and Plan of Merger and Reorganization, dated May 28, 2010, by and among VaxGen, Inc., Violet Acquisition Corporation, Violet Acquisition LLC, diaDexus, Inc. and John E. Hamer, as the agent of diaDexus, Inc.’s stockholders (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K (file no. 0-26483), filed on June 1, 2010)

2.2		Amendment No. 1 to Agreement and Plan of Merger and Reorganization, dated June 24, 2010, by and among VaxGen, Inc., Violet Acquisition Corporation, Violet Acquisition LLC, diaDexus, Inc., and John E. Hamer as the agent of diaDexus, Inc.’s stockholders (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K (file no. 0-26483), filed on June 28, 2010)

3.1		Restated Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Quarterly Report on Form 10-Q (file no. 0-26483) for the fiscal quarter ended September 30, 2010, filed on November 15, 2010)

3.2		Certificate of Change of Registered Agent and Registered Office (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K (file no. 0-26483), filed on January 25, 2011)

3.3		Amended and Restated Bylaws of the registrant (incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K (file no. 0-26483), filed on November 5, 2010)

10.1**		Distribution Agreement, effective as of January 1, 2011 (the “Inova Agreement”), by and between diaDexus, Inc. and Inova Diagnostics, Inc.

10.2**		2011 Special Programs Addendum to the Inova Agreement, effective as of January 1, 2011

10.3**		First Amendment to the Inova Agreement, effective as of January 1, 2011

10.4**		Addendum No. 3 to the Master Supply Agreement, effective as of April 1, 2011, by and between diaDexus, Inc. and Berkeley HeartLab, Inc.

10.5**		Purchase Agreement, effective as of January 1, 2011, by and between diaDexus, Inc. and Health Diagnostics Laboratory

10.6**		Volume Discount Addendum to the Purchase Agreement, effective as of January 1, 2011, by and between diaDexus, Inc. and Health Diagnostics Laboratory

10.7		Volume Discount Addendum No. 2 to the Purchase Agreement, effective as of April 1, 2011, by and between diaDexus, Inc. and Health Diagnostics Laboratory

31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)

31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Certain schedules referenced in the Agreement and Plan of Merger and Reorganization have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the Securities and Exchange Commission upon request.

**	Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the SEC.

EX-10.1 2 dex101.htm DISTRIBUTION AGREEMENT Distribution Agreement

Exhibit10.1

[*] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

DISTRIBUTION AGREEMENT

THIS DISTRIBUTION AGREEMENT (the “Agreement”) is effective as of the day of January 1, 2011 (the “Effective Date”) by and between Inova Diagnostics, Inc. a California corporation with offices located at 9900 Old Grove Road, San Diego, CA 92131 (“DISTRIBUTOR”), and diaDexus, Inc., a Delaware corporation with its principal place of business at 343 Oyster Point Blvd., South San Francisco, CA 94080, USA (“DIADEXUS”), for the purpose of defining the rights and duties of the parties in connection with the distribution by DISTRIBUTOR of DIADEXUS products.

NOW, THEREFORE, for good and valuable consideration, the parties hereby agree as follows:

1.	EXHIBITS AND DEFINITIONS

1.1

Exhibits. The following Exhibits are incorporated into and made a part of this Agreement:

1.1.1

Exhibit A – Products & Prices

1.1.2

Exhibit B – Territory

1.1.3

Exhibit C – diaDexus End User List – Products and Prices for existing End Users

1.1.4

Exhibit D – New Inova End User List – Products and Prices for each new End User

These Exhibits may be modified or adjusted as provided for in this Agreement.

1.2

Definitions: As used in this Agreement, the terms defined below shall have the following meanings:

1.2.1

“Act” shall mean the United States Food Drug and Cosmetic Act of 1938 (21 U.S.C. 301-395) as amended from time to time and the regulations promulgated pursuant thereto.

1.2.2

“Distribute”, “Distribution” and “Distributed” shall mean to sell, distribute, market, promote, stimulate interest in, solicit orders for and provide services in connection with the Products within the Territory.

1.2.3

“End User” shall mean the laboratory, including all sites, subsidiaries, affiliates, divisions and satellites thereof, at which laboratory or medical personnel actually use the Products that are the subject of this Agreement.

1.2.4

“End User Lists” shall mean the diaDexus End User List and the New Inova End User List, both of which shall be maintained in good faith by the parties, update no less than quarterly, and subject to approval by DIADEXUS:

(a)

“diaDexus End User List” shall mean a listing of existing End Users in Exhibit C available to DISTRIBUTOR under this Agreement. The End User List shall include: diaDexus End Users, Product(s) available to diaDexus End User through DISTRIBUTOR, diaDexus End User price, DISTRIBUTOR margin, and effective DISTRIBUTOR Price for Products. [*] End Users on the diaDexus End User List shall include any existing DIADEXUS account or new diaDexus account handed off to DISTRIBUTOR.

(b)

“New Inova End Users List” shall mean a listing of End Users in Exhibit D that are new accounts, brought on solely by DISTRIBUTOR and purchase Product from DISTRIBUTOR [*] under this Agreement. The New Inova End User List shall include: the new Inova End Users, Product(s) available to new Inova End User through DISTRIBUTOR, new Inova End User price, DISTRIBUTOR margin, and effective DISTRIBUTOR Price for Products. [*]

Page 1 of 16

1.2.5

“Excluded End User” shall mean an End User to which DISTRIBUTOR shall have no right to Distribute Products and includes End Users not listed on an End User List that are customers of DIADEXUS or customers of other DIADEXUS distributors.

1.2.6

“Order” shall mean a written description of the Products DISTRIBUTOR desires to purchase and has sent to DIADEXUS by mail, Email, facsimile or similar means.

1.2.7

“[*] License” shall mean the DISTRIBUTOR has the [*] right to Distribute DIADEXUS Products in the Territory as defined in this Agreement.

1.2.8

“Price” shall mean the price at which DIADEXUS agrees to sell Products to DISTRIBUTOR when DISTRIBUTOR Orders Products from DIADEXUS, as set forth in Exhibit A.

1.2.9

“Products” shall mean the DIADEXUS products listed in Exhibit A and any such other DIADEXUS products as DIADEXUS and DISTRIBUTOR shall, from time to time, agree, in writing, to add to Exhibit A.

1.2.10

“Term” shall mean the period from the Effective Date hereof until termination of this Agreement in accordance with Section 12 hereof.

1.2.11

“Territory” shall mean the geographic area into which DISTRIBUTOR may Distribute Products, as defined in Exhibit B.

2.	APPOINTMENT AND ACCEPTANCE.

2.1

Grant of Distributorship Rights

2.1.1

Subject to the terms of this Agreement, DIADEXUS grants DISTRIBUTOR, and DISTRIBUTOR accepts, an [*] License to Distribute the Product within the Territory.

(a)

DISTRIBUTOR may Distribute Products listed in Table 1 of Exhibit A without restriction pursuant to the terms of this Agreement. Only upon the express written consent of DIADEXUS shall DISTRIBUTOR be permitted to Distribute Products listed in Table 2 of Exhibit A to End Users. [*]

(b)

For purposes of this Agreement, modification of End Users and relevant End User information on an End User List (Exhibit C or Exhibit D) by DIADEXUS shall fulfill the obligations of written consent under Section 2.1.1 (a).

2.1.2

DISTRIBUTOR shall not resell the Product to any person or entity within the Territory whom the DISTRIBUTOR or DIADEXUS have any reason to believe may resell the Product outside the Territory.

2.1.3

DISTRIBUTOR agrees not to actively approach individual customers outside the Territory for Distribution (including but not limited to direct mail or visits) of Products, nor to establish warehouses or Distribution outlets outside the Territory for the Products.

2.1.4

In the event that DIADEXUS offers for Distribution during the term of this Agreement any diagnostic product other than the Products, DIADEXUS agrees to negotiate in good faith the terms under which this Agreement could be amended to include such product as a Product hereunder.

2.2

In consideration for the rights granted to DISTRIBUTOR pursuant to Section 2.1 above, DISTRIBUTOR agrees that during the Term of this Agreement, it will not develop, contract to develop, manufacture, sell, license, lease or otherwise Distribute any product that is directly competitive with the Products.

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3.	ORDERING, FORECASTS, DELIVERY, AND ACCEPTANCE.

3.1

Forecasts. [*] prior to the start of each [*], DISTRIBUTOR will provide DIADEXUS with a [*] rolling Product-specific forecast of Orders for such [*] and each of the next [*].

3.2

Orders. Orders for Products by DISTRIBUTOR shall be placed with DIADEXUS by mail, email, or facsimile at the following address and telephone numbers:

DIADEXUS, INC.

343 OYSTER POINT BLVD.

SOUTH SAN FRANCISCO, CA 94080

PHONE: 1-650-246-6400

FAX: 1-650-246-6499

EMAIL: ORDERS@DIADEXUS.COM

DIADEXUS reserves the right to accept or reject an Order from DISTRIBUTOR within fifteen (15) business days after receipt of the Order. DIADEXUS will use good faith commercial efforts to process and ship all Orders in accordance with requested delivery dates. If DIADEXUS has insufficient Product available to meet its orders from DISTRIBUTOR and its other customers, DIADEXUS will allocate its available Product among its customers.

3.2.1

DIADEXUS reserves the right to reject any Order or to suspend or cancel any Order previously accepted if, DIADEXUS determines that such Order is unlikely to be paid for in accordance with the terms and conditions in this Agreement and the Order. Upon a determination that DIADEXUS intends to suspend or cancel a previously accepted Order, DIADEXUS shall give DISTRIBUTOR prompt written notice of such suspension or cancellation and DIADEXUS will be under no further obligation to deliver Products under that Order.

3.2.2

Order Terms. Orders shall be subject to acceptance by DIADEXUS at South San Francisco, California. DISTRIBUTOR may use its standard purchase order form to order Products; however, the terms and conditions of this Agreement shall supersede any different, conflicting, or additional terms on DISTRIBUTOR’s Orders and DIADEXUS hereby expressly rejects any terms in any order that are different from, in conflict with or in addition to the terms and conditions hereof. Such purchase order shall identify the Products ordered, requested delivery date(s) and any export/import information required to enable DIADEXUS to fill the order.

3.3

Return Goods Policy. To ensure quality and to guarantee product claims DIADEXUS cannot resell or transfer Products after they have left the DIADEXUS facility, therefore, DIADEXUS has a “NO RETURN” policy.

3.4

Inspection and Rejection. DISTRIBUTOR shall inspect all Products promptly upon receipt and may reject, by written notice to DIADEXUS, any Products which fail materially to meet the specifications outlined in Product package insert (“Product Specification”). If DISTRIBUTOR does not reject a shipment of Products within fifteen (15) days of receipt, such shipment will be deemed to have been accepted. Rejected Products shall be returned freight prepaid to DIADEXUS within ten (10) days of rejection but only after receipt from DIADEXUS of a Return Goods Authorization (“RGA”), which DISTRIBUTOR may obtain from DIADEXUS by mail, Email or telefax upon proper explanation of the rejection. As promptly as possible and subject to commercially reasonable efforts, but not later than sixty business (60) days after receipt by DIADEXUS of properly rejected Products, DIADEXUS shall, at its option and expense, replace such Products. The party shipping Products pursuant to this Section 3.4 shall bear the entire risk of loss for Products during shipment. Any insurance proceeds payable in respect to any loss for such Products to the extent of any loss incurred during shipment shall be paid to the party bearing the risk of loss for such Products. DIADEXUS will prepay transportation charges back to DISTRIBUTOR for replacement Products and shall reimburse DISTRIBUTOR for any costs of transportation incurred by DISTRIBUTOR in connection with the return to DIADEXUS of properly rejected Products. In the case of improperly rejected or returned Products, DISTRIBUTOR shall pay transportation charges in both directions.

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4.	PRICES AND PAYMENT TERMS.

4.1

Prices.

4.1.1

The Prices for Products Ordered by and shipped to DISTRIBUTOR are valid during the term of each calendar year unless otherwise provided in Exhibit A which may be modified once per calendar year by DIADEXUS.

4.1.2

The DISTRIBUTOR prices for Products on End User Lists are valid during the term of each calendar year unless otherwise provided in an End User List which may be modified as set forth herein.

4.1.3

At the end of each month, DIADEXUS and DISTRIBUTOR shall reconcile the DISTRIBUTOR prices for Products sold to End Users (Exhibits C & D) in a month versus the Price for Products Ordered and shipped to DISTRIBUTOR (Exhibit A). DISTRIBUTOR shall report by the 3^rd business day of each month the number of Products sold to each End User. DIADEXUS shall reconcile the DISTRIBUTOR prices for Products sold to End Users against the Price for Products Ordered and shipped to DISTRIBUTOR and shall issue DISTRIBUTOR a debit or credit note as appropriate.

4.2

All Prices are in U.S. Dollars and do not include freight, insurance or sales tax or any similar tax or assessments of any government entity, all of which shall be borne by DISTRIBUTOR. All shipments are EX-WORKS, DIADEXUS’s supply source or other location as designated by DIADEXUS.

4.3

Payment Terms. All payments are due thirty (30) days from invoice date and DIADEXUS can set and change a credit limit for the DISTRIBUTOR with or without any reason. A one and one-half percent (1.5%) monthly interest rate shall be applied to all outstanding balances not paid within such thirty (30) day period. All such amounts shall be payable in U.S. Dollars by wire transfer, check or other instrument approved by DIADEXUS in writing. Wire transfers shall be made to such bank or account as DIADEXUS may from time to time designate.

5. OBLIGATIONS OF DISTRIBUTOR. DISTRIBUTOR’s obligations under this Agreement shall, without limitation, include the following:

5.1

DISTRIBUTOR shall not Distribute Products to any person or entity that may further Distribute Products, DISTRIBUTOR shall provide DIADEXUS with a complete list of products it markets for others prior to the signing of this Agreement and shall update such list in writing each time it agrees to distribute additional products from any manufacturer during the Term of this Agreement. During the Term of this Agreement, DISTRIBUTOR will not distribute any products competitive with any Product without the prior written approval of DIADEXUS. DIADEXUS reserves the right to determine whether a competitive conflict exists between Products and other products, which may be carried by DISTRIBUTOR.

5.2

DISTRIBUTOR shall use its best efforts to Distribute all Products in the Territory. Any and all costs of Distribution including advertising, sales promotion, workshops, seminars, conventions, exhibits, freight, taxes or other selling costs shall be the responsibility of DISTRIBUTOR. DISTRIBUTOR shall direct to DIADEXUS any End User inquiries and leads received in the Territory for delivery or use outside the Territory.

5.3

DISTRIBUTOR will be responsible to train End Users in the appropriate use of the Products on the appropriate platforms (e.g. DSX).

5.4

DISTRIBUTOR shall stock and maintain an adequate inventory of all Products to satisfy commercially reasonable demand for such Products, to avoid any backorder to the End User.

5.5

DISTRIBUTOR shall honor all Prices for End Users set by DIADEXUS, including special programs (e.g. discounts, credits, tiered volume pricing, etc). DISTRIBUTOR shall be responsible for tracking and accounting of all Prices and special programs and shall receive the same DISTRIBUTOR margin for Products subject to such programs as for Products set forth in the End User List.

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5.6

DISTRIBUTOR acknowledges that it is familiar with and will comply with all applicable laws and regulations as they pertain to the responsibility of a medical device distributor, in the Territory. DISTRIBUTOR acknowledges that with respect to its Distribution of Products, it shall comply with its obligations under applicable laws, statutes and regulations and the following requirements:

5.6.1

All obligations with regard to timely reporting of adverse events and deficiencies of devices. DISTRIBUTOR also agrees to notify DIADEXUS immediately upon learning of any adverse event or deficiencies involving the Products.

5.6.2

DISTRIBUTOR shall maintain adequate written procedures for warehouse control and Distribution of Products. Adequate records of shipments to End Users including records showing “Customer by Product” and “Product by Customer” shall be maintained according to the requirements defined in Section 5.15 of this Agreement. The records shall be in such a form as to enable DIADEXUS or the applicable regulatory authorities to trace the location of all regulated Products by DIADEXUS catalog number and lot or serial number.

5.6.3

DISTRIBUTOR shall immediately refer all written and oral complaints concerning the Products to DIADEXUS. DISTRIBUTOR shall not respond directly to End User complaints regarding the performance of the Products, but contact first DIADEXUS. DISTRIBUTOR shall assist DIADEXUS with any requested investigations, provide documentation to understand any claims of defect or nonconformity of Product to the Product Specifications and liaison between End User and DIADEXUS. DISTRIBUTOR shall keep a record of all End User complaints.

5.7

DISTRIBUTOR shall, at its own expense, pay all import and export licenses and permits, pay customs charges and duty fees, and take all other actions required to accomplish the export and import of the Products purchased by DISTRIBUTOR. DISTRIBUTOR understands that DIADEXUS is subject to regulation by agencies of the U.S. government, including the U.S. Department of Commerce, which prohibit export or diversion of certain technical products to certain countries. DISTRIBUTOR warrants that it will comply in all respects with the export and re-export restrictions set forth in the export license for every Product shipped to DISTRIBUTOR.

5.8

DISTRIBUTOR shall maintain product liability insurance per local industry standards and carry coverage similar to that required by other US manufacturers. DISTRIBUTOR agrees that it shall provide DIADEXUS within thirty business days (30) of the signing of this Agreement with a certificate evidencing such insurance and will provide DIADEXUS with at least thirty days prior written notice of any cancellation or change of limits or terms of such policy

5.9

Prior to use, DISTRIBUTOR shall submit copies of all advertising and promotional materials for Products to DIADEXUS for DIADEXUS approval. DISTRIBUTOR will not remove any DIADEXUS notices, regulatory marks or warnings, nameplate or trademarks from the Products or put their names and trademarks on the Products without prior written approval from DIADEXUS. All promotional materials for promoting the DIADEXUS Products will carry the DIADEXUS logo and trademark following the DIADEXUS guidelines.

5.10

DISTRIBUTOR shall make no representations or warranties with respect to the Products other than those specifically authorized in writing by DIADEXUS.

5.11

DISTRIBUTOR agrees to develop and review prior to each calendar year with DIADEXUS an annual business plan for Distribution of Products, including promotional plans and sales forecasts. DISTRIBUTOR shall provide monthly reports of actual sales within twenty (20) calendar days of the end of each month. Such report shall include information regarding all End Users in the Territory that have purchased Products, unit sales by each End User sorted by zip code and Product code.

5.12

DISTRIBUTOR shall not repackage the Products, and will only resell the Products in the same packaging as originally received from DIADEXUS.

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5.13

DISTRIBUTOR shall allow the authorized representative of DIADEXUS or its duly appointed agent access to and inspection of, the premises of the DISTRIBUTOR at reasonable times for the purpose of inspecting the aforesaid books and records and all Products in the DISTRIBUTOR’s possession and to ascertain that the provision of this Agreement are being adhered to by the DISTRIBUTOR.

5.13.1

If any governmental or regulatory authority or any entity representing such an authority (each, a “Regulatory Authority”) requests access to DISTRIBUTOR’s records, facilities, equipment and/or personnel, or conducts an unannounced inspection, or takes any other regulatory action (e.g., any warning letters, or equivalents of US notices such as FDA-483s, and EIRs), in each case relating to the Products then DISTRIBUTOR shall promptly notify DIADEXUS by telephone followed by hard copy confirmation. DIADEXUS shall have the right to be present at any audit or inspection by a Regulatory Authority that relates to Products, and, where time permits, to conduct a pre-audit inspection.

5.13.2

DISTRIBUTOR shall promptly provide DIADEXUS copies of all relevant communications between DISTRIBUTOR and any Regulatory Authority relating to Products. Where DISTRIBUTOR is required or intends to respond to any such communication, DISTRIBUTOR shall provide DIADEXUS with a copy of such communication and DISTRIBUTOR’s proposed response sufficiently in advance of the date that such response is to be submitted, in order to permit DIADEXUS to review and comment upon such response. To the extent permitted by law and as agreed by DISTRIBUTOR (which agreement shall not be unreasonably withheld), DISTRIBUTOR will incorporate all such comments into such response prior to submission.

5.14

DISTRIBUTOR shall retain all applicable Quality records during the Term hereof and for five (5) years thereafter.

5.15

Products and all other data, information, results or other records generated for the Products, regardless of the method of storage or retrieval, will either be elected by DIADEXUS as:

5.15.1

delivered to DIADEXUS in such form as is agreed to by the parties;

5.15.2

retained by DISTRIBUTOR on behalf of DIADEXUS; or

5.15.3

disposed of, at the direction and written request of DIADEXUS.

5.16

Prior to destruction of any such records or samples under Section 5.15, DISTRIBUTOR shall notify DIADEXUS in writing. DIADEXUS shall have thirty (30) calendar days from its receipt of such notice to notify DISTRIBUTOR that it desires to receive such records or samples. In such event, such records or samples will be delivered to DIADEXUS or its designee at DIADEXUS expense. If DIADEXUS does not notify DISTRIBUTOR that it desires to receive such records or samples within such thirty-day period, then DISTRIBUTOR shall be free to destroy such records or samples by shredding or incinerating or other such method that assures their destruction.

6.	OBLIGATIONS OF DIADEXUS. DIADEXUS shall have the following obligations under this Agreement:

6.1

DIADEXUS will provide training and training material to DISTRIBUTOR as well as a promotional start-up kit in the English language to help the DISTRIBUTOR launch the Products successfully. DIADEXUS will also provide from time to time additional materials as it deems, in its discretion reasonable, necessary to assist the DISTRIBUTOR in the Distribution of Products in the Territory.

6.2

DIADEXUS shall promote demand for Products by such advertising and promotional activity as DIADEXUS deems desirable in any location. DIADEXUS shall provide marketing direction and guidance to DISTRIBUTOR at DIADEXUS’ discretion.

6.3

DIADEXUS shall maintain liability insurance per US industry standards covering the Products in amounts commercially reasonable.

6.4

DIADEXUS shall provide Product labeling in English.

6.5

DIADEXUS’s entry into this Agreement is rightful and does not violate any other agreement to which it is a party.

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6.6

DIADEXUS shall provide to DISTRIBUTOR such literature, brochures, and other materials as DIADEXUS deems reasonable. DIADEXUS will supply to DISTRIBUTOR at cost, and for use solely with respect to Products in the Territory, one set of camera-ready artwork and/or color separated reprints of available promotional materials.

7.	QUALITY, WARRANTY, AND DISCLAIMERS.

7.1

DIADEXUS warrants as follows:

7.1.1

That all Products manufactured and supplied under this Agreement shall at the time of shipment meet the Product Specification. No claim under this warranty may be made with respect to a unit of the Products after the expiration of the shelf life of the Product as determined by DIADEXUS.

7.1.2

That prior to Product shipment, all of its standard tests and quality control procedures shall have been carried out in relation to each lot of the Products with satisfactory results.

7.2

Each party shall immediately notify the other, by rapid means of communication, in the event of (i) nonconformity of any Products to the Product Specification or, (ii) any Products’ failure or difficulties disclosed by quality control tests carried out on the Products. The details of such notification to be confirmed in writing.

7.3

Upon its verification of any claim of defect or nonconformity of a unit of the Products to the Product Specification during the Term, DIADEXUS will use commercially reasonable efforts to provide DISTRIBUTOR with a replacement unit, to the extent necessary to honor DIADEXUS’ warranties contained in Section 7.1 or to make good any shortages or incomplete deliveries. DISTRIBUTOR shall assist DIADEXUS with necessary documentation or investigations to understand any claims of defect or nonconformity of Product to the Product Specification.

7.4

DISTRIBUTOR warrants that:

7.4.1

DISTRIBUTOR’s entry into this Agreement is rightful and does not violate any, law, statute, regulation or any other agreement to which it is a party.

7.4.2

DISTRIBUTOR’s conduct in performing its obligations under this Agreement shall conform to all applicable laws, regulations, treaties and international agreements, general and local industry and medical standards, rules and regulations and good commercial practices, and all equivalents of the foregoing applicable to Products in the Territory.

7.5

DISTRIBUTOR shall not make any express warranty on behalf of DIADEXUS with regard to the Products other than as may be from time to time provided by DIADEXUS as set forth in DIADEXUS’ End User Product literature, and any such other warranty made by DISTRIBUTOR to its customers, including End Users, with respect to the Products shall not obligate DIADEXUS in any way.

7.6

In the event that DIADEXUS decides to recall, replace or take other action with respect to any Products, it will immediately notify DISTRIBUTOR by rapid means of communication and DISTRIBUTOR shall immediately cease sales of any units of Product in its possession or control which are subject to the action. The reasonable and justifiable costs of recovering Product in the field and its replacement in any action affecting a Product will be borne by DIADEXUS. DISTRIBUTOR shall assist DIADEXUS with any product recalls.

7.7

Alterations to any Products which DIADEXUS deems necessary or desirable may be made at any time by DIADEXUS without prior notice to, or consent of, DISTRIBUTOR and such altered Products shall be deemed fully conforming to DIADEXUS specifications. DISTRIBUTOR shall not make any alterations or modifications whatsoever to Products without the express prior written consent of DIADEXUS.

7.8

DIADEXUS DOES NOT WARRANT THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PRODUCTS OR THE PERFORMANCE THEREOF OR FREEDOM FROM THIRD PARTY CLAIMS OF INFRINGEMENT AND DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO PRODUCTS, SPECIFICATIONS, SUPPORT, SERVICE OR ANYTHING ELSE, OTHER THAN THE WARRANTY CONTAINED IN SECTION 7.1 ABOVE.

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DIADEXUS HAS NOT AUTHORIZED ANYONE TO MAKE ANY REPRESENTATION OR WARRANTY OTHER THAN THE LIMITED WARRANTY CONTAINED HEREIN.

7.9

To the extent allowed by law, liability of DIADEXUS to any person with respect to the Products and/or the relationship described in this Agreement, shall not exceed the amount of money paid pursuant to this Agreement to DIADEXUS with respect to the unit or units of Product involved in the incident giving rise liability. In the case of liability relating to any allegedly defective or infringing unit of Products, DIADEXUS’ liability shall, under any legal or equitable theory, be further limited to replacement of the unit, or if impractical, return of the purchase price paid by DISTRIBUTOR for such unit. DIADEXUS SHALL IN NO EVENT BE LIABLE TO DISTRIBUTOR OR TO ANY OTHER PERSON FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOST PROFITS, OR LOST DATA, COST OF PROCUREMENT OF SUBSTITUTE GOODS, OR ANY INDIRECT DAMAGES EVEN IF DIADEXUS HAS BEEN INFORMED OF THE POSSIBILITY THEREOF.

8.	CONFIDENTIAL INFORMATION AND INFRINGEMENT ACTIONS.

8.1

Except as otherwise expressly provided in this Agreement, during the Term hereof and for five (5) years thereafter, each party shall hold in confidence and not use or disclose to any third party any product, technical, discovery, development, marketing, financial, business or other proprietary information (“Proprietary Information”) disclosed to such party by the other. DISTRIBUTOR may disclose Proprietary Information only to its employees, agents and other representatives who are made aware such Proprietary Information is confidential and who are bound to treat and use the Proprietary Information as such with respect to this Agreement.

8.2

A party shall not be bound by the provisions of Section 8.1 with respect to:

8.2.1

Information which at the time of disclosure is published or otherwise generally available to the public through no fault of the party seeking not to be bound by this Section 8 or its employees, agents, distributors and other representatives;

8.2.2

Information which can be proven by written records was in the possession of such party at the time of disclosure and which was not acquired directly or indirectly from the other party;

8.2.3

Information rightfully acquired without restriction by such party from a third party who did not obtain it under pledge of secrecy to another person or entity; and

8.2.4

Information which is required by law to be disclosed; provided that in such event DIADEXUS or DISTRIBUTOR shall immediately notify the other party of such requirement and provide reasonable assistance in any efforts to protect the information from disclosure.

8.3

Except as provided herein, DISTRIBUTOR shall not acquire any grant, license or rights in respect of DIADEXUS’ intellectual property rights e.g. patents, patent applications, trade secrets, and the name and marks used by DIADEXUS. Only DIADEXUS shall have the right, but not the obligation, to bring or threaten action or collect damages or settlements for infringement of proprietary rights with respect to Products by third parties. DISTRIBUTOR will promptly notify DIADEXUS of any potential infringement of which it becomes aware.

9.	INDEMNITY.

9.1

DISTRIBUTOR agrees to indemnify, defend and hold harmless DIADEXUS and its affiliates from and against any claims, suites, losses, damages, liabilities, costs and expenses (including reasonable attorney’s fees) brought by third parties, including any End Users resulting from or relating to:

9.1.1

any breach by DISTRIBUTOR of its obligations, duties or responsibilities under this Agreement,

9.1.2

any actions or omissions on the part of DISTRIBUTOR in marketing or distributing the Products.

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9.1.3

any representations, warranties, guarantees, or other written or oral statements made by or on behalf of DISTRIBUTOR relating to the Product other than those authorized by DIADEXUS in writing or made in DIADEXUS’ written materials.

9.2

If DISTRIBUTOR receives a claim by a third party that any Product infringes a patent validly issued in the Territory, then DISTRIBUTOR will notify DIADEXUS promptly in writing within five (5) business days of receipt of such claim and give DIADEXUS all reasonable information and assistance and the exclusive authority to evaluate, defend and settle such claim. DIADEXUS, at its own expense and option, may assume control of the settlement and/or defense of such claim.

9.2.1

Nothing in this Agreement shall be interpreted as a warranty of non-infringement with respect to the Products.

9.3

DIADEXUS shall indemnify, defend and hold harmless DISTRIBUTOR against, and hold it harmless from, any and all claims, damage, costs, attorneys’ fees or expenses made against, or sustained by, DISTRIBUTOR by reason of any willful or negligent acts or omissions of DIADEXUS or its employees or agents.

10. DISTRIBUTOR STATUS. For the purpose of carrying out this Agreement, DISTRIBUTOR shall be and act as independent contractor and not as an agent or employee of DIADEXUS and shall not be entitled to any benefits applicable to employees of DIADEXUS nor have to power to bind, and agrees not to attempt to bind, DIADEXUS to any contract, warranty or representation without prior written approval thereof from DIADEXUS.

11. NON-ASSIGNMENT. Neither party to this Agreement shall have the right to assign, transfer, subdivide or otherwise deal with any obligations or benefit under this Agreement without the prior written consent of the other, which shall not be unreasonably withheld, except that DIADEXUS may assign and transfer this Agreement and its rights and obligations hereunder to any party succeeding to substantially all of its business, and may assign or transfer any rights to receive payments hereunder.

12.

TERM & TERMINATION.

12.1

The term of this Agreement (“Term”) shall commence on the Effective Date and shall expire on [*].

12.2

DIADEXUS may at its option terminate this Agreement for DISTRIBUTOR’s failure to meet minimum commitments and failure to meet the terms of an agreed-upon correctional program for one (1) quarter. Any such termination shall be effective upon receipt of notice of termination by DISTRIBUTOR.

12.3

This Agreement may be terminated prior to its expiration by either party upon thirty (30) days written notice in the event of:

12.3.1

Failure to cure any breech within the thirty (30) day period following receipt of the notice of breach of any material term (including payment terms) of the Agreement;

12.3.2

The liquidation or insolvency of, or the filing of bankruptcy, or similar proceeding with respect to the other party, or

12.3.3

The other party ceasing to actively engage in business; or

12.3.4

DISTRIBUTOR becomes controlled by a competitor of DIADEXUS or another entity unacceptable to DIADEXUS.

12.4

During the last month of the Term or after a proper notice of termination is received by a party, DISTRIBUTOR agrees to limit the Order of Products with all best efforts to have zero (0) Products in DISTRIBUTOR inventory upon termination or expiration of this Agreement. DIADEXUS may limit shipments of Product to DISTRIBUTOR during such last month or notice period to help DISTRIBUTOR achieve such zero inventory efforts.

12.5

Upon termination of this Agreement:

12.5.1

DIADEXUS may, at its option, cancel all or part of scheduled but unshipped deliveries, and all other obligations of DIADEXUS hereunder shall terminate.

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12.5.2

All rights and licenses of DISTRIBUTOR hereunder shall be terminated and DISTRIBUTOR shall not Distribute Products.

12.5.3

DISTRIBUTOR shall within thirty (30) days of the effective date of termination return to DIADEXUS all of DIADEXUS’ Proprietary Information then in DISTRIBUTOR’s possession, custody or control including, without limitation, all manuals covering Products and all End User Lists.

12.5.4

DISTRIBUTOR shall submit to DIADEXUS within thirty (30) days after the effective date of termination a list, quantities, and lot numbers of all Products in DISTRIBUTOR’s inventory as of the effective date of the termination.

12.5.5

Except as expressly provided in this Agreement the provisions of this Agreement shall be without effect after termination.

12.6

Upon the termination or expiration of this Agreement, All End Users shall become direct DIADEXUS accounts and DISTRIBUTOR shall have no further obligation nor right to Distribute Products to End Users, provided however, DISTRIBUTOR shall remain responsible for invoicing, collections and customer service of all Products that DISTRIBUTOR shipped to End Users.

12.7

At least forty-five (45) days prior to termination or expiration of the Agreement (e.g. [*] if expiring under Section 12.1) DIADEXUS and DISTRIBUTOR shall agree on the content of a notice to be delivered by DISTRIBUTOR to End Users informing End Users of account transfer to DIADEXUS.

12.8

Upon the termination of this Agreement, DIADEXUS shall have no obligation to the DISTRIBUTOR, or to any employee, agent, or representative of the DISTRIBUTOR, for compensation or for damages of any kind, whether on account of loss by the DISTRIBUTOR, or by such employee, agent, or representative of present or prospective sales, investments, compensation or goodwill. DISTRIBUTOR, for itself and on behalf of each of its employees, agents and representatives, hereby waives any rights that may be granted to it or them under the laws and regulations of the Territory or otherwise which are not granted to it or them by this Agreement. DISTRIBUTOR hereby indemnifies and holds DIADEXUS harmless against any and all claims, costs, damages and liabilities whatsoever asserted by any employee, agent, or representative of DISTRIBUTOR under any applicable termination, labor, social security or other similar laws or regulations of the Territory.

12.9

Upon the termination of this Agreement, DISTRIBUTOR shall have no obligation to DIADEXUS or to any employee, agent or other representative of DIADEXUS for compensation or for damages of any kind, whether on account of loss by DIADEXUS, or by such employee agent or other representatives of present or prospective sales, investments, compensation or goodwill; provided, however, that nothing in this section shall relieve DISTRIBUTOR of any liability for willful misconduct, gross negligence, or breach of contract. DIADEXUS hereby indemnifies and holds DISTRIBUTOR harmless against any and all claims, costs, damages and liability whatsoever asserted by an employee, agent or representative of DIADEXUS under any applicable termination, labor, social security or other similar laws or regulations of the United States.

12.10

The exercise of a right of termination under this Agreement shall not operate as a waiver of any other right or remedy arising under the Agreement or by operation of law.

13. EVENTS BEYOND CONTROL. Neither party shall be liable for any failure to fulfill any term or condition of this Agreement if fulfillment has been delayed, hindered or prevented by event of force majeure including, but not limited to, any strike, lockout or other industrial dispute, acts of the elements, compliance with requirements of any governmental port or international authority, plant breakdown or failure of equipment, inability to obtain equipment, fuel, power, materials or transportation, or by any circumstances whatsoever beyond its reasonable control, including, but not limited to, demand for Products in excess of DIADEXUS’ ability to produce Products and alleged or demonstrated infringement by the Products or their use of any proprietary right of a third party. In the event of excess demand for Products, DIADEXUS may allocate the supply of Products among its customers in the manner it deems most appropriate.

Page 10 of 16

14. NOTICE. All notices issued or served under this Agreement shall be in writing, including fax, and shall be deemed given when sent by fax to the fax number of the party set forth herein or such other number as each last gave written notice of to the other. Fax notices shall be confirmed by registered mail, or overnight courier but failure to do so shall not render any notice invalid. Any such notice if given or made by registered or recorded delivery mail letter or overnight courier shall be deemed to have been received on the earlier of the date actually received and the date fifteen (15) calendar days after the same was posted (and in providing such it shall be sufficient to prove that the envelope containing the same was properly addressed and posted as aforesaid).

Notice to be sent to:

DISTRIBUTOR:

DIADEXUS:

Inova Diagnostics, Inc.

9900 Old Grove Road

San Diego, CA 92131

Attention: CEO Roger Ingles

Phone: 18585869900

Fax: 18585869911

diaDexus, Inc.

343 Oyster Point Boulevard

South San Francisco, CA 94080

Attention: CEO

Phone: 1-650-246-6400

Fax: 1-650-246-6499

15.

MISCELLANEOUS.

15.1

The failure of either party to enforce its rights under this Agreement at any time for any period shall not be construed as a waiver of such rights.

15.2

No changes or modifications or waivers can be made to this Agreement unless evidenced in writing and signed for on behalf of both parties.

15.3

In the event that any provision of this Agreement shall be determined to be unenforceable, all other provisions shall remain in full force and effect and the affected provision shall be construed so as to be enforceable to the maximum extent possible.

15.4

This Agreement shall be interpreted in accordance with the laws of the State of California without regard to the conflicts of laws provisions. Headings herein are for convenience of reference only and shall in no way affect interpretation of this Agreement.

15.5

Such terms and conditions of DISTRIBUTOR’s Orders or invoices or other sales documents as may be in conflict in whole or in part with the provisions of this Agreement shall be of no force or effect whatsoever and the provisions of this Agreement shall be controlling in any such instance. It is the intention of both parties hereto that the acceptance, even in writing, of any such purchase or sales document not constitute a modification or amendment of, or addition to, the terms of this Agreement unless accompanied by a typed letter of Agreement conspicuously entitled “Amendment of Agreement” which begins with a proposal to amend the Agreement and specifies exactly each change to be made and which is signed by an authorized officer of both parties.

15.6

The exclusive jurisdiction and venue of any action with respect to this Agreement shall be the Superior Court of California for the County of San Mateo or the United States District Court for the Northern District of California and each of the parties hereto submits itself to the exclusive jurisdiction and venue of such courts for the purpose of any such action, and agrees not to claim that either such court is an inconvenient forum. Service of process in any such action may be effected in the manner provided in Section 14 for delivery of such notices. Any action shall be commenced within one year of any shipment related to the action and the prevailing party in any legal action to enforce or interpret this Agreement shall be entitled to full recovery of all costs and attorneys fees.

[signature page follows]

Page 11 of 16

THE TERMS AND CONDITIONS OF THIS DISTRIBUTION AGREEMENT ARE AGREED TO AND ACCEPTED BY:

DIADEXUS:

DIADEXUS, INC.

NAME: Patrick Plewman

Title: President & CEO

Signature: /s/ Patrick Plewman

Date: 3/24/11

DISTRIBUTOR:

INOVA DIAGNOSTICS, INC.

NAME: Roger Ingles

Title: President & CEO

Signature: /s/ Roger Ingles

Date: 3/17/11

Page 12 of 16

EXHIBIT A

Products & Prices

Only upon the express written consent of DIADEXUS shall DISTRIBUTOR be permitted to Distribute to an End User the Products in Table 1.

Table 1.

Table 2 lists the Products that upon the express written consent of DIADEXUS, DISTRIBUTOR shall be permitted to Distribute to an End User.

Table 2.

[*]

EXHIBIT B

Territory

Territory: The “Territory” shall mean [*].

EXHIBIT C

diaDexus End User List

(see attached)

[*]

[*] Two pages have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portion.

EXHIBIT D

New Inova End User List

(see attached)

[*]

[*] Two pages have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portion.

EX-10.2 3 dex102.htm 2011 SPECIAL PROGRAMS ADDENDUM TO THE INOVA AGREEMENT 2011 Special Programs Addendum to the Inova Agreement

Exhibit 10.2

2011 Special Programs Addendum

This 2011 Special Programs Addendum to the Distribution Agreement (the “Addendum”) is effective as of January 1, 2011 (the “Addendum Effective Date”), by and between diaDexus, Inc. (“diaDexus”), and Inova Diagnostics, Inc. a California corporation with offices located at 9900 Old Grove Road, San Diego, CA 92131 (“Distributor”).

WHEREAS, Distributor and diaDexus are parties to that certain Distribution Agreement dated January 1, 2011 (the “Agreement);

WHEREAS, the parties desire to amend such Agreement to enable special programs for customers in 2011.

NOW THEREFORE, in consideration of the agreements, mutual representations and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.	Definitions. All capitalized terms not defined herein shall have the meaning assigned to them in the Agreement.

2.	Term. This Addendum shall begin on the Effective Date and terminate on *[]** (the “Term”).

[*] Beginning [*] Distributor shall Distribute Product from Table 1 of Exhibit A to [*] under the terms and conditions of the existing agreements diaDexus has with [*] (attached hereto as Appendix A). In consideration for Distributor honoring all terms for the supply and Distribution of Products under the [*] agreements Distributors margin for Products sold to [*] shall be [*].

[*].

Beginning [*] Distributor shall Distribute Product to [*] at Prices set forth in the diaDexus End User List dated [*]. Distributor shall require [*] to provide monthly end user testing volumes by five-digit zip codes to diaDexus in writing within ten (10) days after the close of each calendar month.

Beginning in [*], for each month [*] reports [*] volume [*], Distributor shall issue [*] for reaching such [*] volume.

[*]

shall be issued within [*]. Concurrent with [*] as set forth in [*] for the [*] volume [*]. [*] As an example and for clarification purposes only: if [*] reports to diaDexus that [*], Distributor shall issue [*].

[*].

Distributor shall Distribute Product to [*]. Distributor shall sell Product from Table 1 of Exhibit A to [*].

[*] as part of the fulfillment of each order for Products by [*].

Page 1 of 5

[*].

Beginning [*] Distributor shall Distribute Product to [*] under the terms and conditions of the existing agreements between diaDexus and [*] (attached hereto as Appendix B). In consideration for Distributor honoring all terms for the supply and Distribution of Products under the [*] agreements Distributors margin for Products sold to [*] shall [*]. As an example and for clarification purposes only: if Distributor sells [*].

On [*] Section 6.a. of this Addendum shall terminate. On [*] shall become a direct diaDexus account and Distributor shall have no further obligation nor right to Distribute Products to [*], provided however, Distributor shall remain responsible for invoicing, collections and customer service of all Products that Distributor shipped to [*] prior to [*]. By [*] diaDexus and Distributor shall agree on the content of a notice to be delivered by Distributor to [*] informing [*] of account transfer to diaDexus.

[*]. Distributor shall offer End User [*] based on [*] reported [*] volume if [*] volume [*] meets certain targets during the periods of [*]. If [*] reports in [*] volume of [*] then Distributor shall issue [*] reported for the period. If [*] reports in [*] volume of [*] then Distributor shall issue [*] reported for the period. [*] shall be issued within [*]. As an example and for clarification purposes only: if [*] reports to diaDexus that [*] and if [*] reports to diaDexus that [*], Distributor shall issue [*].

[*].

[*] and purchase Product listed in Table 1 of Exhibit A from Distributor, [*]. Distributor shall invoice [*] showing number of Product listed in Table 1 of Exhibit A [*].

[*]

[*] and purchase Product listed in Table 1 of Exhibit A from Distributor, [*]. Distributor shall invoice [*] as set forth in Section 8.a. above.

9.	Survival. All payment and credit obligations within this Addendum shall survive termination of the Addendum provided relevant conditions are met to require such payments or credits.

10.

Entire Agreement. In the event of any conflict between the terms and conditions of this Addendum and the Agreement, the terms and conditions of this Addendum shall control. Except as otherwise provided in the Addendum, the parties agree that all provisions of the Agreement are hereby ratified and agreed to be in full force and effect and are incorporated herein by reference. This Addendum and the Agreement (as amended hereby), including without limitation all addenda, contain the entire agreement among the parties relating to the subject matter herein and all prior proposals, discussions and writings by and among the parties and relating to the subject matter herein, whether written or oral, are superseded hereby and thereby. None of the terms of this Addendum shall be deemed to be amended unless such amendment is in writing, signed by all parties hereto, and recites specifically that it is an amendment to the terms of this Addendum.

[signature page follows]

Page 2 of 5

IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed by their fully authorized representatives.


diaDexus, Inc.:		Inova Diagnostics, Inc:

By: /s/ Patrick Plewman		By: /s/ Roger Ingles
Name: Patrick Plewman		Name: Roger Ingles
Title: President and CEO		Title: President and CEO

Date: 3/24/11		Date: 3/17/11

Page 3 of 5

Appendix A

[*]

Page 4 of 5

[*]

[*] Four pages have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portion.

Appendix B

[*]

Page 5 of 5

[*]

[*] Five pages have been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portion.

EX-10.3 4 dex103.htm FIRST AMENDEMENT TO THE INOVA AGREEMENT First Amendement to the Inova Agreement

Exhibit 10.3

FIRST AMENDMENT TO DISTRIBUTION AGREEMENT

THIS FIRST AMENDMENT TO THE DISTRIBUTION AGREEMENT (“1^st Amendment”) is effective as of January 1, 2011 (the “1^st Amendment Effective Date”), by and between Inova Diagnostics, Inc. a California corporation with offices located at 9900 Old Grove Road, San Diego, CA 92131 (“DISTRIBUTOR”), and diaDexus, Inc., a Delaware corporation with its principal place of business at 343 Oyster Point Blvd., South San Francisco, CA 94080, USA (“DIADEXUS”).

WHEREAS, DISTRIBUTOR and DIADEXUS are parties to that certain Distribution Agreement dated January 1, 2011 (the “Distribution Agreement”) and the 2011 Special Programs Addendum dated January 1, 2011 (the “Program Addendum”), collectively the “Agreement”;

WHEREAS, the parties desire to amend such Agreement to correctly indicate the [*] nature of the Agreement.

1. Definitions. All capitalized terms not defined herein shall have the meaning assigned in the Agreement.

2. Grant of Distributorship Rights. The first sentence of Section 2.1.1 of the Distribution Agreement is hereby amended by replacement with the following language:

Subject to the terms of this Agreement, DIADEXUS grants DISTRIBUTOR, and DISTRIBUTOR accepts, a [*] License to Distribute the Product within the Territory.

3. Entire Agreement. In the event of any conflict between the terms and conditions of this 1^st Amendment and the Agreement, the terms and conditions of this 1^st Amendment shall control. Except as otherwise provided in the 1^st Amendment, the parties agree that all provisions of the Agreement are hereby ratified and agreed to be in full force and effect and are incorporated herein by reference. This 1^st Amendment and the Agreement (as amended hereby), including without limitation all Exhibits hereto, contain the entire agreement among the parties relating to the subject matter herein and all prior proposals, discussions and writings by and among the parties and relating to the subject matter herein, whether written or oral, are superseded hereby and thereby. None of the terms of this 1^st Amendment shall be deemed to be amended unless such amendment is in writing, signed by all parties hereto, and recites specifically that it is an amendment to the terms of the Agreement and this 1^st Amendment.

IN WITNESS WHEREOF, the parties hereto have caused this 1^st Amendment to be executed by their fully authorized representatives.


DIADEXUS:		DISTRIBUTOR:
diaDexus, Inc.		Inova Diagnostics, Inc.

By: /s/ P. Plewman		By: /s/ Roger Ingles

Name: P. Plewman		Name: Roger Ingles

Title: Pres. & CEO		Title: CEO

Date: 4/7/11		Date: 4/7/11

Page 1 of 1

EX-10.4 5 dex104.htm ADDENDUM NO. 3 TO THE MASTER SUPPLY AGREEMENT Addendum No. 3 to the Master Supply Agreement

Exhibit 10.4

Addendum No. 3 to the Master Supply Agreement Dated as of April 1, 2009

This Addendum No. 3 to the Master Supply Agreement dated as of April 1, 2009 (the “Third Addendum”) is effective as of April 1, 2011 (the “Third Addendum Effective Date”), by and between diaDexus, Inc. (“diaDexus”), and Berkeley HeartLab, Inc. (“Lab”).

WHEREAS, Lab and diaDexus are parties to that certain Master Supply Agreement dated April 1, 2009, as amended by Addendum No. 1 dated as of April 1, 2010 and Addendum No. 2 dated as of May 14, 2010 (collectively, the “Agreement”);

WHEREAS, the parties desire to amend such Agreement to extend the term of the Agreement.

1. Definitions. All capitalized terms not defined herein shall have the meaning assigned to them in the Agreement.

2. Term. The first sentence of Section C of the Agreement is hereby deleted in its entirety and replaced with the following:

The term of the Agreement shall commence on April 1, 2009 and expire on [*] (the “Term”), unless terminated earlier pursuant to Paragraph N or P.

3. Entire Agreement. In the event of any conflict between the terms and conditions of this Third Addendum and the Agreement, the terms and conditions of this Third Addendum shall control. Except as otherwise provided in the Third Addendum, the parties agree that all provisions of the Agreement are hereby ratified and agreed to be in full force and effect and are incorporated herein by reference. This Third Addendum and the Agreement (as amended hereby), including without limitation all Attachments hereto, contain the entire agreement among the parties relating to the subject matter herein and all prior proposals, discussions and writings by and among the parties and relating to the subject matter herein, whether written or oral, are superseded hereby and thereby. None of the terms of this Third Addendum shall be deemed to be amended unless such amendment is in writing, signed by all parties hereto, and recites specifically that it is an addendum to the terms of this Third Addendum.

IN WITNESS WHEREOF, the parties hereto have caused this Third Addendum to be executed by their fully authorized representatives.


diaDexus, Inc.:				Berkeley HeartLab, Inc.:

By: /s/ Patrick Plewman				By: /s/ Michael Mercer

Name: Patrick Plewman				Name: Michael Mercer

Title: CEO				Title: Senior Vice President

Date: 4/8/11				Date: Apr 7, 2011

Page 1

EX-10.5 6 dex105.htm PURCHASE AGREEMENT Purchase Agreement

Exhibit 10.5

Health Diagnostics Laboratory and diaDexus, Inc.

PURCHASE AGREEMENT – KIT PURCHASES

This Purchase Agreement between diaDexus, Inc. (“diaDexus”) and Health Diagnostics Laboratory located at 737 N. 5^th Street, Richmond, VA 23219 and any or all of its subsidiaries or affiliates (“Lab”), sets forth the terms and conditions upon which diaDexus will sell to Lab, and Lab will purchase, various products (the “Agreement”). As of January 1, 2011 (“Effective Date”) the parties agree as follows:

In consideration of Lab purchasing from diaDexus the products specified in the current diaDexus published Product Catalog and US Price List (“Products”) diaDexus agrees to sell Products to Lab at prices based on a current published list price [*]. Lab shall not sell Products or offer to sell Products to other entities.

[*]

Any discount received by Lab hereunder is a “discount or other reduction in price” under Section 1128B(b)(3)(A) of the Social Security Act. diaDexus shall indicate any such discount on the relevant invoice or by other means that reasonably identifies the discount provided to Lab. Lab shall accurately disclose all discounts received by it to any federal or state health care program which provides reimbursement for the kits and to any regulatory body having oversight over such health care program, as required by 42 C.F.R. § 1001.952(h) and as otherwise required by applicable law.

The term of the Agreement shall commence on January 1, 2011 and expire on [*] (the “Term”). The parties hereto acknowledge that this Agreement, including any exhibits and addendums attached hereto, sets forth the entire agreement and understanding of the parties as to the subject matter hereof, and supersedes all prior and contemporaneous discussions, agreements, and writings with respect hereto with respect to the subject matter hereof. All previous agreements between diaDexus and Lab and Lab’s subsidiaries will terminate and be null and void effective as of the Effective Date of this Agreement. This Agreement may not be amended or modified except by written agreement of both of the parties. This Agreement may be terminated by either party with or without cause at any time with ninety (90) days written notice.

All obligations pursuant to the terms and conditions of Paragraphs D, E, F, G, H, I, J, L and M shall survive expiration or termination of this Agreement and continue in full force and effect for a period of five (5) years after the effective date of such expiration or such termination.

diaDexus shall ship Product(s) to the Lab which orders such Product(s) under a purchase order and which is authorized by the parties under this Agreement. Shipment shall be made FOB diaDexus’ supply source. diaDexus shall have no obligation to accept return of Product(s) or replace any shipment of Product(s) after delivery of such shipment of Product(s) by diaDexus. Products shall be supplied in accordance with a specification for identity and quality of the Product as set forth in the product insert (the “Specification”). The Specifications are considered a performance guaranty and represent the expectation for the Product’s performance by Lab. Product will be shipped to the following address:

Health Diagnostics Laboratory

Receiving Department

737 N 5^th St. Suite 103

Richmond, VA 23219

Phone: 8043432718

D.	Upon written request by diaDexus, Lab will provide diaDexus with monthly testing volumes by five-digit zip codes in writing within ten (10) days after the close of each calendar month.

Lab shall pay diaDexus net thirty (30) days after the date stated on invoice provided by diaDexus to Lab. All applicable taxes are the responsibility of Lab. In those states where diaDexus collects local/state sales taxes, diaDexus will add these taxes to the invoices and after receipt of payment including such taxes from Lab, remit to the appropriate taxing authority. Any payment due and payable under the terms and conditions of this Agreement made after the date such payment is due and payable shall bear interest as of the day after the date such payment was due and payable and shall continue to accrue such interest until such payment is made at a rate equal to the lesser of the prime rate as reported by JPMorgan Chase & Co., New York, New York, on the date such payment is due, plus an additional two percent (2%), or the maximum rate permitted by law if lower. All payments made under this Agreement shall be made in U.S. dollars, and such payments shall be made by check or wire transfer to one or more bank accounts to be designated in writing by diaDexus. Notwithstanding anything to the contrary, diaDexus shall have no obligation to continue delivering Product pursuant to the terms of this Agreement in the event that Lab fails to make any payment due and payable pursuant to this Agreement.

F.	Invoices, notices and other communications permitted or required under this Agreement will be deemed to be properly given if in writing and either delivered by hand or mailed by First Class U.S. Mail, postage prepaid, addressed to the applicable party as follows:

Health Diagnostics Laboratory

737 N. 5th Street

Richmond, VA 23219

Attention: Tonya Mallory

diaDexus, Inc.

343 Oyster Point Boulevard

South San Francisco, CA 94080

Attention: CEO

Lab shall label the product as the PLAC® Test for Lp-PLA₂ on its test requisition order forms. If Lab wishes to market the diaDexus Product using the associated marks, diaDexus hereby grants to Lab a non-exclusive, non-sublicensable license to use its trademarks solely for the Permitted use. Under such license, Lab shall comply with diaDexus policy regarding use of diaDexus marks. Lab shall submit all proposed representations of any trademarks to diaDexus for approval in writing, such approval shall not be unreasonably withheld or delayed.

Page 1 of 2

The parties have provided to each other prior to entering into this Agreement, and in connection with this Agreement may in the future provide to each other, confidential information, including but not limited to each party’s know-how, inventions, improvements, discoveries, patent applications, trade secrets, devices, compositions, formulas, ideas, designs, drawings, specifications, techniques, data, computer programs, processes, customer lists, product prices, discounts, sales data, marketing, product development and other business plans, legal affairs and financial and technical information and material embodiments thereof (“Confidential Information”).

Confidential Information may be disclosed orally or in writing. Each receiving party may disclose this Confidential Information only to its employees, agents and consultants on a need to know basis; provided that any such person to whom disclosure is made is bound by obligations of non-disclosure and non-use no less restrictive than those set forth herein. The receiving party shall take the same degree of care that such party uses to protect its own confidential and proprietary information of a similar nature and importance, but in no event shall such care be less than reasonable care. The receiving party shall not disclose such Confidential Information to any third party, and shall not use such Confidential Information for any purpose except as expressly permitted under the terms and conditions of this Agreement. This obligation of confidentiality shall not apply to any information that (a) is in the public domain, (b) comes into the public domain through no fault of the receiving party, (c) is disclosed to the receiving party by a third party having a lawful right to make such disclosure, (d) is in response to a valid order of a court or other governmental body or (e) is required by law or regulation; provided, however, that the receiving party shall first have given reasonable prior notice to the disclosing party and shall have made a reasonable effort to obtain a protective order, or to cooperate with the disclosing party’s efforts, as applicable, to obtain a protective order limiting the extent of such disclosure and requiring that the Confidential Information so disclosed be used only for the purposes for which such order was issued or as required by such law or regulation. The terms and conditions of this Agreement shall be Confidential Information of the parties.

diaDexus represents and warrants to Lab that the Products supplied shall (i) not be adulterated or misbranded by diaDexus within the meaning of the U.S. Food, Drug, and Cosmetic Act; and (ii) function in accordance with the documentation supplied by diaDexus in connection with such Products after delivery to Lab in accordance with Paragraph C; provided that Lab maintains and stores such Products in accordance with instructions contained in such documentation. EXCEPT AS SPECIFICALLY SET FORTH IN THIS PARAGRAPH I, DIADEXUS MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR USE, ANY WARRANTY OF NON-INFRINGEMENT, ANY WARRANTY OF SAFETY, OR ANY OTHER STATUTORY WARRANTY. EXCEPT IN CONNECTION WITH THE PARTIES’ OBLIGATIONS UNDER PARAGRAPH H, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, INDIRECT, PUNITIVE, EXEMPLARY, OR SPECIAL DAMAGES INCURRED BY THE OTHER OR ANY AFFILIATE OR SUBSIDIARY ARISING OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY.

diaDexus acknowledges that Lab has a proprietary interest in its legal and business name and reputation. Lab acknowledges that diaDexus has a proprietary interest in its legal and business name and reputation as well as the brand name and trademarks of its products. Therefore, each party agrees that it shall not use the other party’s name nor shall a party mention or describe this Agreement or its relationship with the other party in any press release, advertising, marketing, and promotional materials or other publications or materials without first obtaining the prior written approval of the other party.

diaDexus will not be liable for any failure to perform under this Agreement due to strikes, fire, explosion, flood, riot, lock-out, injunction, interruption of transportation, unavoidable accidents, or inability to obtain supplies at reasonable prices. In the event that a Product is unavailable, diaDexus will notify Lab of such unavailability by written or electronic communication, and diaDexus will, within the course of twenty-one (21) working days, notify Lab of an action plan to correct the problem.

If any term, condition or provision of this Agreement is held to be unenforceable for any reason, it shall be interpreted to achieve the intent of the parties to this Agreement to the extent possible rather than voided. In any event, all other terms, conditions, and provisions of this Agreement shall be deemed valid and enforceable to the full extent.

M.	Each party shall carry out its activities pursuant to this Agreement in compliance with all applicable federal, state, and local laws, rules, regulations, and guidelines.

Except as expressly provided herein, neither this Agreement nor any interest hereunder will be assignable, nor any other obligation delegable, by a party without the prior written consent of the other; provided, however, diaDexus may assign this Agreement without consent to any successor in interest by way of merger or sale of all or substantially all of its assets in a manner such that the assignor will remain liable and responsible for the performance and observance of all such duties and obligations hereunder. Any purported assignments made in violation of this Paragraph N shall be null and void.

To the extent that there is any conflict or inconsistency between this Agreement and any purchase order, the current diaDexus published Product Catalog and US Price List, or any other document pertaining to the supply of Product, the terms of this Agreement shall govern unless specifically acknowledged and agreed to in writing by each of the parties.


Health Diagnostics Laboratory		diaDexus, Inc.

By:	/s/ Tonya Mallory	By:	/s/ Patrick Plewman
Print Name: Tonya Mallory		Name: Patrick Plewman
Title: President & CEO		Title: President & CEO

Date:	2/17/11	Date:	2/16/11

Page 2 of 2

EX-10.6 7 dex106.htm VOLUME DISCOUNT ADDENDUM TO THE PURCHASE AGREEMENT Volume Discount Addendum to the Purchase Agreement

Exhibit 10.6

Volume Discount Addendum

This Volume Discount Addendum to the Purchase Agreement (the “Addendum”) is effective as of January 1, 2011 (the “Addendum Effective Date”), by and between diaDexus, Inc. (“diaDexus”), and Health Diagnostics Laboratory located at 737 N. 5th Street, Richmond, VA 23219 and any or all of its subsidiaries or affiliates (“Lab”).

WHEREAS, Lab and diaDexus are parties to that certain Purchase Agreement dated January 1, 2011 (the “Agreement);

WHEREAS, the parties desire to amend such Agreement (i) to make Product available to Lab through diaDexus’ distributor and (ii) to make a limited term volume discount available to Lab for Lab reaching [*] volume thresholds [*].

1.	Definitions. All capitalized terms not defined herein shall have the meaning assigned to them in the Agreement.

2.	Addendum Term. This Addendum begins on the Effective Date and terminates on *[]** (the “Addendum Term”).

3.	Product Supply. For the duration of this Addendum Term, Lab shall order Products from diaDexus’ distributor, *[]** at the prices set forth in the Agreement.

Program. Beginning January 1, 2011 Lab shall be eligible to receive special Product pricing and subsequent pricing discounts upon reaching certain [*]. Upon reaching the specific volume tiers as outlined in the section “HDL 2011 Volume Discount Addendum” of Exhibit A, [*] shall sell Lab Products at the discount as set forth in same section of Exhibit A (the “Program”). [*] As an example and for clarification purposes only: if Lab [*], [*] shall invoice Lab for [*]. [*] shall continue to sell Products to Lab [*]. Exhibit A outlines Lab’s Purchase Agreement pricing and prices of Products in discount volume tiers under the Program.

5.	Reimbursement Review. In consideration of diaDexus offering the Program to Lab, Lab and diaDexus shall review Lab’s net reimbursement for resolved claims (“Net Reimbursement”) *[]**.

By [*] Lab shall issue [*] reports to diaDexus on Lab’s Net Reimbursement [*]. Such reports shall only include Net Reimbursement for [*] and shall be broken out by payor.

6.	Program Term. The Program shall begin on the Effective Date and terminate *[]**.

[signature page follows]

Page 1 of 3

IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed by their fully authorized representatives.


diaDexus, Inc.:		Health Diagnostics Laboratory:

By: /s/ Patrick Plewman		By: /s/ Tonya Mallory
Name: Patrick Plewman		Name: Tonya Mallory
Title: President and CEO		Title: President and CEO

Date: 2/16/11		Date: 2/17/11

Page 2 of 3

EXHIBIT A

Products Available to Lab and Pricing

[*]

Page 3 of 3

EX-10.7 8 dex107.htm VOLUME DISCOUNT ADDENDUM NO. 2 TO THE PURCHASE AGREEMENT Volume Discount Addendum No. 2 to the Purchase Agreement

Exhibit 10.7

Volume Discount Addendum No. 2

This 2^nd Volume Discount Addendum to the Purchase Agreement (the “2^nd Addendum”) is effective as of April 1, 2011 (the “2^nd Addendum Effective Date”), by and between diaDexus, Inc. (“diaDexus”), and Health Diagnostics Laboratory located at 737 N. 5th Street, Richmond, VA 23219 and any or all of its subsidiaries or affiliates (“Lab”).

WHEREAS, Lab and diaDexus are parties to that certain Purchase Agreement dated January 1, 2011 (the “PA”) and the Volume Discount Addendum thereto dated January 1, 2011 (the “1^st Addendum”), collectively the “Agreement”;

WHEREAS, the parties desire to amend such 1^st Addendum to make Product available to Lab directly from diaDexus.

1.	Definitions. All capitalized terms not defined herein shall have the meaning assigned to them in the Agreement.

2.	Product Supply. Beginning on the 2^nd Addendum Effective Date, Lab shall order Products directly from diaDexus pursuant to the terms and conditions of the Agreement.

3.	Program. diaDexus shall be responsible for all aspects of the Program previously fulfilled by diaDexus’ distributor.

4.	1^st Addendum Continuance. Except as set forth above, the 1^st Addendum remains in full force and effect, including the Program, Net Reimbursement review, and the Program Term.

Entire Agreement. In the event of any conflict between the terms and conditions of this 2^nd Addendum and the Agreement, the terms and conditions of this 2^nd Addendum shall control. Except as otherwise provided in the 2^nd Addendum, the parties agree that all provisions of the 2^nd Agreement are hereby ratified and agreed to be in full force and effect and are incorporated herein by reference. This 2^nd Addendum and the Agreement (as amended hereby), including without limitation all addenda, contain the entire agreement among the parties relating to the subject matter herein and all prior proposals, discussions and writings by and among the parties and relating to the subject matter herein, whether written or oral, are superseded hereby and thereby. None of the terms of this 2^nd Addendum shall be deemed to be amended unless such amendment is in writing, signed by all parties hereto, and recites specifically that it is an amendment to the terms of this 2^nd Addendum.

IN WITNESS WHEREOF, the parties hereto have caused this 2^nd Addendum to be executed by their fully authorized representatives.


diaDexus, Inc.:				Health Diagnostics Laboratory:

By: /s/ Patrick Plewman				By: /s/ Tonya Mallory
Name: Patrick Plewman				Name: Tonya Mallory
Title: President and CEO				Title: President and CEO

Date: 4/19/11				Date: 4/19/11

Page 1 of 1

EX-31.1 9 dex311.htm CERTIFICATION OF CEO PURSUANT TO RULE 13A-14(A) CERTIFICATION OF CEO PURSUANT TO RULE 13A-14(A)

Exhibit 31.1

CERTIFICATION

I, Patrick Plewman, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of diaDexus, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

EX-31.2 10 dex312.htm CERTIFICATION OF CFO PURSUANT TO RULE 13A-14(A) CERTIFICATION OF CFO PURSUANT TO RULE 13A-14(A)

Exhibit 31.2

CERTIFICATION

I, David J. Foster, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of diaDexus, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

EX-32.1 11 dex321.htm CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350 CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of diaDexus, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick Plewman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

•

The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, and

•

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

EX-32.2 12 dex322.htm CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350 CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of diaDexus, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David J. Foster, Executive Vice President, Chief Financial Officer and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

•

The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, and

•

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.